What happens when countries spend more on debt than on education? | Experts’ Opinions

It is said that investments in education are the ones with the greatest returns. However, what happens when, instead of consolidating the education sector, countries spend more money to pay off their debts? According to the latest UNESCO figures, 113 countries now face this situation: their spending on debt servicing is higher than their spending on education. The UN agency estimates that low- and lower-middle-income countries face an education financing gap of approximately US$97 billion annually, and this gap is growing. DevelopmentAid asked several experts to provide insights on the root of this issue and the measures necessary to redress the situation.

DevelopmentAid: When countries spend more on debt servicing than on education, is the problem borrowing, the global financial system, or how development finance is designed?

“The latest UNESCO figures confirm a problem that has been visible for years. High debt service can leave less money for education. Nevertheless, I do not think borrowing itself is the main problem. Countries need to borrow to finance development. The key questions are simple: what do they borrow for, on what terms, and does this borrowing make the economy stronger. The global financial system is part of the problem because many developing countries face high financing costs. However, governments also make their own decisions about debt, spending and investment. In my view, education must be part of this wider economic discussion. It is not only a social expense. Schools, teachers, skills, universities and research build the human capital needed for productivity, innovation and future growth. Therefore, I would look beyond the simple comparison between debt and education. The real question is whether borrowing and public policy together help a country build its own capacity to grow.”

“For me, the problem is not borrowing alone, but the interaction between unsustainable borrowing practices, structural weaknesses in the global financial system, and the design of development finance. Many developing countries borrow to bridge significant financing gaps in infrastructure, health, education, and broader economic development. However, high interest rates, currency depreciation, external shocks, and limited access to affordable long-term financing make debt servicing increasingly burdensome. UNESCO’s finding that 113 countries, home to 6.1 billion people, now spend more on debt servicing than on education illustrates the severity of this imbalance. The situation is further compounded by projections that global aid to education could decline by up to 30% between 2023 and 2027, while education’s share of development assistance has already fallen to 7.5%. While governments must borrow responsibly and strengthen domestic fiscal management, the conditionalities surrounding international debt raise a fundamental question: is development finance genuinely designed to enable development, or does it risk deepening the vulnerabilities of less privileged economies? Sustainable development requires a fairer financial architecture that protects critical social investments and prioritizes long-term human and economic development over short-term debt obligations.”

“The failure is systemic, and it shows a double standard. Since 2020, developing countries have borrowed internationally at rates two to four times higher than the U.S. African countries borrow at around eight times Germany’s rates. The Jubilee Commission convened by the late Pope Francis and chaired by Joseph Stiglitz (Editor’s note: the Jubilee Commission was convened by the late Pope Francis in 2024, to address the global debt crisis affecting low- and middle-income countries) found such rates higher than default risk justifies. That is not a result of borrowing too much. It is the price at which the system is designed to lend. The blame usually runs the other way. Ask why 113 countries now spend more on debt service than on education, and the answers offered point inward, to mismanagement, corruption, and borrowing beyond means. However, the objection to changing the debt architecture gives the creditors’ game away. They warn that relief would cut off future market access, which shows that continued borrowing is what the system protects. Underneath all that architecture sits a hierarchy of enforcement. A bondholder holds a claim enforceable in an English court. A minister of education holds a budget line. When revenue falls short, the legally enforceable claim gets paid first, while schools go underfunded.”

“This question is difficult to answer in the abstract, and needs to be unpacked in light of national specifics. Particular issues that would merit further analysis in the national context would include:

• The country’s overall fiscal space.
• How fiscal deficits are financed.
• The significance of education spending in the overall fiscal balance.
• How education is financed (particularly in terms of private versus public education, and central- versus local-government budget finance).
• What factors (e.g., teacher salaries, new school construction expenses, restructuring education infrastructure in light of declining enrollments) are the main drivers of spending in the education sector deemed to be excessive.”

“In my view, the problem is not borrowing itself. Borrowing can be a powerful development instrument when it finances productive investments that generate long-term economic and social returns. In Africa, investments in education, health, water, energy or infrastructure can strengthen human capital and economic growth and, ultimately, improve a country’s capacity to repay its debt. The problem arises when countries borrow at high costs, for short maturities, or under conditions that do not match the long-term returns of the investments being financed. This vulnerability becomes particularly severe when countries are exposed to external shocks such as commodity price fluctuations, climate-related disasters, conflicts, pandemics or currency depreciation. The African experience illustrates this structural problem. In 2024, debt servicing was expected to absorb around 34% of government revenues across sub-Saharan Africa, significantly reducing fiscal space for education and other essential services. The African Development Bank also estimated that African countries would spend around US$74 billion on debt service in 2024, compared with only US$17 billion in 2010. Therefore, I believe the challenge is both domestic and international. African governments need stronger domestic resource mobilization, better public financial management, greater transparency and more disciplined borrowing. But the international financial architecture also needs to address the high cost of capital faced by African countries and provide more effective mechanisms for debt restructuring. The current situation suggests that development finance is still too fragmented and too focused on financing individual projects rather than protecting countries’ long-term fiscal capacity. Education should not be treated as a residual expenditure that is protected only when fiscal conditions are favorable. It is an investment in the productive capacity of the next generation.”

DevelopmentAid: What are the key pros and cons of debt-for-education swaps as a solution to countries’ growing debt and education financing challenges?

“UNESCO sees debt-for-education swaps as a useful additional tool. The IMF and the World Bank also stress that such swaps should bring a clear financial benefit. I agree, but I would ask one more question: what does the country really gain? A good swap can reduce debt payments and make more money available for education over several years. This matters because education needs stable financing. Schools, teachers, skills and research cannot be developed with short-term funding. But there are clear limits. A swap does not always create new money. It can be expensive and difficult to organize. Money directed to education may simply replace money that the government had already planned to spend. And a swap cannot solve a serious debt crisis if the country needs full debt restructuring. For me, the main test is the result. Does the swap improve the debt position, add real resources for national education priorities, and strengthen human capital over time? If not, its development value is limited.”

“Debt-for-education swaps have become increasingly relevant as more countries spend more on debt repayments than on education and global education aid continues to decline. Their primary advantage is that they convert debt obligations into investments in education, creating fiscal space for governments to strengthen schools, teacher development, and learning outcomes without increasing overall debt. They also encourage collaboration among creditors, governments, and development partners while aligning debt relief with the Sustainable Development Goals. However, debt-for-education swaps are not a comprehensive solution. They typically cover only a fraction of total debt, require lengthy negotiations, and depend on strong governance to ensure that the resulting fiscal savings are actually directed towards education. Without strong accountability, transparency, expenditure tracking, and measurable indicators, there is no guarantee that the intended additional investment in education will materialize. Moreover, such swaps cannot compensate for declining international education aid or resolve the structural drivers of debt distress. Their greatest value lies within a broader package that includes debt restructuring, concessional finance, domestic resource mobilization, and sustained investment in quality education.”

“Debt-for-education swaps deliver, but they deliver at a scale that cannot justify the headlines made for them. Côte d’Ivoire’s December 2024 swap, the first backed by a World Bank guarantee, refinanced €400 million of its most expensive commercial debt. The headline is €330 million freed for schools over five years. The saving is €60 million. The debt was not written off, no creditor took a major loss, and a €240 million public guarantee bought the cheaper loan. Public money took the risk. Private lenders kept the returns. The design of the swap matters as much as the numbers behind it. Ecuador’s Galápagos swap pays investors a 5.645% coupon, but insurance, guarantee and management fees lift the effective rate to 7.387%. That extra goes to international intermediaries and insurers, not local schools. The earmark sits within a trust whose board includes international bodies, committing Ecuador to about US$18 million a year for two decades, outside its own budget process. What any swap cannot do is change why the debt became unpayable. It buys a ministry some years of breathing room but leaves the borrowing terms, the creditor hierarchy and the restructuring rules where it found them. It is like taking painkillers for cancer: temporary relief, no cure.”

“Pros:

• Such swaps can (in certain circumstances) serve as an additional source of external finance for education (the overall impact of ‘debt-for-development’ swaps for particular sectors can be negated by reductions in other forms of development finance for those sectors).
• Like other such swaps, debt-for-education swaps can help deepen the domestic financial system (e.g., by securitizing public debt and making it a tradable asset class).

Cons:

• Many developing countries do not possess the financial institutions and infrastructure needed to facilitate such swaps.
• Discussions about debt-for-education swaps can obscure (or take attention away from) the need for education sector reforms, which should ideally be pursued as well.
• It may not be intuitively obvious why debt-for-education swaps should be pursued in a given country instead of other ‘debt-for-development’ (e.g., debt-for-nature) swaps.”

“Debt-for-education swaps can be a useful instrument, but they should be considered a complementary solution rather than a substitute for comprehensive debt restructuring or increased domestic and international financing. Their main advantage is that they can transform part of an existing debt burden into investment in education without necessarily requiring the country to mobilize entirely new resources. The recent Côte d’Ivoire operation is particularly interesting. With World Bank support, the country is refinancing approximately €400 million of relatively expensive commercial debt through funding on better terms. The operation is expected to free around €330 million in budget resources over five years and generate at least €60 million in net present value savings, with resources supporting education. This demonstrates that debt swaps can potentially achieve two objectives simultaneously: improving debt sustainability and protecting social investment. They can also provide more predictable, multi-year financing for education and align debt management with national development priorities. UNESCO now recognizes debt-for-education swaps as one potential tool for addressing the education financing crisis. However, there are important limitations. First, debt swaps are relatively complex financial transactions. Their preparation, negotiation and monitoring can generate significant transaction and administrative costs. If the financial structure is too complicated, part of the resources that should benefit education may be absorbed by transaction costs. Second, they cannot solve a structural debt crisis. A country with fundamentally unsustainable debt may need substantial debt cancellation or restructuring rather than simply exchanging one form of debt for another. Third, there is a risk that education priorities become too narrowly defined by the conditions of the swap. The resources should therefore remain aligned with national education strategies and be integrated into national budgets and systems. Finally, transparency and accountability are essential. Civil society, education stakeholders and national institutions should be involved in defining how the fiscal savings will be used and in monitoring the results. For these reasons, I would see debt-for-education swaps as a bridge rather than a destination: they can create breathing space, but they should be part of a broader reform of sovereign debt and development finance.”

DevelopmentAid: How can the international community rethink global debt rules to ensure that investments in education are protected during debt crises, and which reforms would have the greatest impact?

“Current international efforts to make debt restructuring faster and to allow temporary pauses in debt payments are useful. I support these steps, but I think they are not enough. Education needs long-term and stable financing. Teacher training, vocational education, universities and research take many years to build. If funding is cut for several years during a debt crisis, the damage cannot be repaired quickly. I would therefore support a protected multi-year education financing framework within the national budget. It should protect a core level of education investment during debt and fiscal adjustment. At the same time, it should remain flexible enough to reflect each country’s real needs and financial capacity. In my view, debt sustainability should not mean only that a country can continue making payments. A good debt solution should also leave enough space for investment in human capital and future growth. The goal should be simple: solve the debt problem without damaging the country’s ability to develop after the crisis.”

“The UNESCO data underscore the urgency of reforming global debt rules. If 113 countries now spend more on debt servicing than on education while international support for education is shrinking, the current system is failing to protect one of the world’s most important development investments. The international community should introduce education expenditure protection clauses into debt restructuring agreements, ensuring that minimum education spending is maintained during debt crises. International financial institutions should also expand concessional financing and establish emergency facilities that support education rather than requiring deep social spending cuts. The most impactful reform would be to embed education and other essential social investments into debt sustainability assessments and restructuring frameworks. In addition, private creditors should participate more fully in coordinated debt relief efforts. Protecting education should not be viewed as a fiscal concession but as a strategic investment that strengthens human capital, economic productivity, and long-term debt sustainability while advancing the Sustainable Development Goals.”

“Two reforms matter more than any new instrument. First, give debtors a seat where restructuring terms are set. Having facilitated the UN General Assembly’s 2019 debt resolution and led G77’s negotiations, I have watched this stall repeatedly. Last year’s Sevilla Commitment dropped the UN framework convention on sovereign debt that the African Group and AOSIS had asked for. What remains is a commitment to an intergovernmental process, from which the United States, the European Union and the United Kingdom dissociated. However, the same document delivered the Borrowers’ Platform, launched in April 2026. It is becoming the first standing forum where debtors coordinate before facing the Paris Club. Initiatives like this deserve backing. That is how the balance shifts. The second reform sits in London. Around 90% of the debt the poorest countries owe private creditors is governed by English law. A UK law stopping holdout creditors suing for more than they would get under equal terms would cost the Treasury nothing. It would also stop British taxpayers subsidizing lenders who refuse relief. New York is considering a similar law, and Belgium’s version has survived challenges in its highest courts. The difficulty is not technical. It is political. It is a choice about whether a holdout creditor’s claim outranks a school budget.”

“The answer to this question depends in part on the ‘ambition’ (which is often negatively correlated with political feasibility, in both domestic and international contexts) of reforms in the international development finance sector. A ‘realistic’ approach to this question, which would reflect the pessimism that dominates many current assessments of prospects for such ‘reforms’, would emphasize increasing the share of highly concessional development finance for low-income countries, subject to such being used for education. Such a change would be relatively easy to implement (if donors were so interested). If the political feasibility condition is relaxed, then other possible changes (e.g., significant increases in ODA, adoption of less expansionary fiscal and monetary policies in OECD countries, to lower interest rates on global debt and make more finance available for developing countries, etc.) could be considered. It should be added that many developing (particularly middle-income) countries could seek to (accelerate) reform of domestic education systems, particularly in terms of education financing, rather than placing the burden solely on external finance.”

“The most important reform would be to recognize certain social investments, particularly basic education, as essential expenditures that should be protected during debt restructuring and fiscal crises. Today, debt restructuring often focuses primarily on restoring financial sustainability. We should move toward a model that also measures the social sustainability of debt. I would suggest at least five reforms. First, introduce social spending floors into debt restructuring programs. Debt sustainability assessments should explicitly consider the minimum resources required to maintain education, health and other essential services. Debt repayment should not come at the cost of losing a generation of children from school. Second, accelerate and strengthen sovereign debt restructuring mechanisms. Delays in restructuring can deepen economic contraction and force governments to make emergency cuts to social spending. A predictable and coordinated mechanism involving bilateral, multilateral and private creditors would reduce uncertainty and the social cost of debt crises. Third, expand concessional financing and guarantees for countries investing in human capital. Countries should not face the same financing conditions when borrowing to expand productive and social infrastructure as when borrowing for less development-oriented purposes. International financial institutions could use guarantees and blended finance to reduce the cost of capital. Fourth, integrate education into debt sustainability analysis. A country’s debt sustainability should not be assessed only through debt-to-GDP or debt-service ratios. It should also consider whether the country has sufficient fiscal space to finance the human capital required for long-term growth. Fifth, establish stronger counter-cyclical financing mechanisms. When a country is hit by a major external shock, such as a pandemic, conflict or climate disaster, debt repayments should be able to automatically slow down or be temporarily suspended, while essential education spending is protected. This is particularly important for Africa because the continent faces several simultaneous pressures: demographic growth, climate change, conflict and displacement, and the need to create jobs for a rapidly expanding young population. Cutting education during a debt crisis may improve short-term fiscal indicators, but it can undermine long-term economic growth and make future debt sustainability even more difficult. Ultimately, the international community should move from a model in which debt sustainability means simply being able to repay creditors toward a broader concept of sustainability: a country should be able to service its debt while continuing to invest in the human capital, resilience and productive capacity needed to sustain its development. The current education financing crisis is therefore an opportunity to rethink the relationship between debt and development. For Africa, the objective should not simply be to find new ways to borrow, but to build a financing architecture that allows countries to invest in their people without sacrificing their future to today’s debt obligations. In my view, the most powerful principle should be simple: debt should never become a mechanism through which countries finance the present by sacrificing the education of the next generation.”

See also: Investing in children in times of crisis: Long-term vision or forgotten priority? | Experts’ Opinions

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