While addressing a Sustainable Development Goals (SDGs) review meeting on Monday, July 17, UN Secretary General António Guterres expressed grave concern over the growing indebtedness of developing countries and asked for immediate steps to create an effective debt relief system.
This year marks the midway point for the SDGs which were adopted in 2015 to achieve crucial goals, such as eradicating extreme poverty, by 2030. Highlighting the worrying trend in the progress towards the SDGs, Guterres noted that “the annual SDG funding gap has risen from $2.5 trillion before the pandemic to an estimated $4.2 trillion.”
He emphasized that “governments are drowning in debt—with developing countries facing sky high borrowing costs,” which impacts their capacity to work towards the achievement of the SDGs, and yet there is “no effective system of debt relief in sight.”
The issue of high public debt incurred by developing nations was highlighted by two UN reports which came out last week.
GCRG report on growing debt
On July 12, Guterres released a report titled “A world of debt: a growing burden to global prosperity,” prepared by the Global Crisis Response Group (GCRG) on Food, Energy and Finance. It claimed that 3.3 billion people, nearly half of humanity, lives in countries which spend more on paying interest on debt than on education and health.
The report notes that the total global public debt reached a whopping $92 trillion in 2022, a five-fold increase since 2000, with developing countries shouldering 30% of the burden—a disproportionate share given the size of their economies.
During the presentation of the report, Guterres blamed the failure of the global financial system, rooted in “colonial era inequality,” for this crisis, where as many as 52 countries—40% of the developing world—are on the brink of serious debt trouble.
He highlighted that the global financial system is increasingly dominated by private players which reflects in the arbitrary and unequal borrowing rates. He noted that for poor African countries, the borrowing rates are at least four times higher than the US and eight times higher than rich European economies.
The report also claims that developing countries use an average 7.4% of all their export revenues to repay debt, which is higher than their total social sector expenditure on health and education in most cases.
The report calls for a debt relief system based on “payment suspension, longer lending terms and lower rates” for developing and middle income countries.
UNDP: 165 million more poor between 2020-2023
The growing debt crisis was also highlighted by this year’s UNDP policy brief, called “The Human Cost of Inaction: Poverty, Social Protection and Debt Servicing, 2020-2023,” released on July 14.
The brief claimed that at least 165 million more people were forced into poverty during the last three years—affected by the pandemic, cost of living crisis, and the war in Ukraine—at a poverty line defined at $3.65 per individual per day. The UN claims that almost 75 million of them are below the daily income level of $2.15 a day.
The brief calls for an immediate pause on debt repayment by developing countries, calling it “debt-poverty pause.” According to UNDP head Achim Steiner, “in highly indebted countries, there is a correlation between high levels of debts, insufficient social spending, and an alarming increase in poverty rates.”
Steiner also noted that there are 46 countries in the world who pay more than 10% of their government’s general revenue on net interest payment, which makes it increasingly difficult for them “to support their populations through investments in health, education and social protection.”
The pause in debt repayment is necessary to “redirect debt repayment towards financing social expenditures and countering the effects of macroeconomic shocks,” the brief notes.
