In the study, Debt Justice looked at a group of 91 of the world’s poorest countries. For these countries, public debt repayments to foreign lenders will consume more than 16 percent of government revenues on average in 2023, and then almost 17 percent next year.
These 91 countries are classified by the World Bank as lower- and lower-middle-income countries. Sri Lanka, Laos, Pakistan, Zambia and the island state of Dominica have the highest foreign debt.
Most from private lenders
According to the World Bank, in 2023 and 2024, private lenders accounted for 46 percent of foreign debt in the countries surveyed, not counting Chinese private lenders, 30 percent from multilateral institutions, 12 percent from Chinese public and private lenders, and 12 percent percent on governments.
The last time debt was this high – around the turn of the millennium – the International Monetary Fund (IMF), World Bank and governments granted sweeping debt relief. Under the Heavily Indebted Poor Countries Initiative, many countries were forgiven most of their bilateral and multilateral public external debt.
Chow: “Debt hinders public services”
Heidi Chow, executive director of Debt Justice, said in a report by the Financial Times (“FT”) that debt repayments for many governments today have returned to “crisis-prone” levels that “hamper their ability to provide public services to combat the climate crisis and respond to economic turmoil”.
The average debt level hit a low of 6.6 percent of government revenue in 2011 and has since risen again to 16.3 percent in 2023. Chow called for “rapid and comprehensive” foreign debt relief, including amending the UK and New York state bond treaty laws to force private creditors to participate in debt relief.
Ahmed: “The situation is different today”
Masuud Ahmed looks at the issue from a more neoliberal perspective. He is a former senior staffer at the IMF and World Bank and President of the Washington-based think tank Center for Global Development (CGD). According to him, today’s problems can no longer be tackled in the same way as in the past.
“The situation is different today,” he said. “Most borrowers want to keep their access to multilateral lenders and especially private creditors.”
Problem case Sri Lanka
According to World Bank data analyzed by Debt Justice, the Asian country of Sri Lanka in particular faces the steepest schedule for repaying its external debt, which accounts for 75 percent of government revenue this year. It is followed by Laos with 65.6 percent, Dominica with 57.8 percent and Pakistan with 46.7 percent.
Sri Lanka’s scheduled domestic debt repayments are even higher. According to a report by the IMF last month, these will account for more than 27 percent of gross domestic product (GDP) by 2023. That is almost three times as much as the foreign debt, which amounts to 9.8 percent of GDP according to the IMF.
Country hit hard by CoV pandemic
Over the years, Sri Lanka had taken out a large number of loans and borrowings from foreign banks and governments and had thus become heavily indebted. Rating agencies have continuously downgraded the country’s credit rating. As a result, Sri Lanka has also lost access to international financial markets. With the beginning of the CoV pandemic, tourism in the country also collapsed – a vital economic sector in the country.
The ongoing economic crisis and shortages of electricity, fuel and medicines led to large-scale anti-government protests in March 2022. Then, in May, Sri Lanka was officially insolvent for the first time in its history.
Sanhita Ambast, global research and policy adviser at Amnesty International (AI), told the Guardian that Sri Lanka’s people have been hit hard because the government’s debt left it without the resources to respond to other shocks when they hit entered.
Expert criticizes the lack of development funds
Mae Buenaventura, coordinator of the Asian People’s Movement on Debt and Development, told the Guardian: “Debt payments are depriving countries of the South of much-needed development funds to protect their citizens from the ever-worsening economic and climate crises. Without debt relief, Southern debt will continue to mount and development finance will continue to bleed dry.”
AI policy adviser Ambast called for more coordinated action by multilateral organizations like the G-20 to ensure governments are able to spend money on essential services rather than service their debts. However, she is not confident that lessons have been learned from the crisis in Sri Lanka.
“I don’t really see the international action that should be taken on debt. Statistics show that the situation in Sri Lanka is not as unusual as we might wish. Concerns were raised but no concrete action was taken,” Ambast said.
Japan: restructuring of Sri Lanka’s debt
In their struggle to find a solution to the severe debt crisis in Sri Lanka, Japan, France and India recently set up a negotiation platform among the creditor states. The aim of the initiative launched by Japan is to coordinate talks between Sri Lanka’s creditors to restructure the South Asian island state’s multi-billion dollar debt.
However, it is uncertain whether Sri Lanka’s largest bilateral creditor, China, will join the process. As of last September, Sri Lanka had foreign debts of around 32 billion euros. According to the Japanese Ministry of Finance, 19 percent of this was in China, seven percent in Japan and five percent in India. Japanese Finance Minister Shunichi Suzuki nevertheless spoke of a “historic achievement” when presenting the initiative in Washington.
IMF: Global debt is rising
Global debt is also on the rise again. As new estimates by the IMF show, after two years of significant declines, debt levels will increase again in 2023 and in the years to come. For this year, the IMF is therefore expecting an average value of 93.3 percent in relation to economic output.
In the CoV pandemic, debt had skyrocketed in 2020 to a record level of almost 100 percent. Since then it has fallen again to a good 92 percent by the end of 2022. The IMF then expects continuous growth of more than one point per year up to 2028 and an overall increase to 99.6 percent.
Debt high despite more restrictive financial policy
“Debt sustainability is a cause for concern in many countries,” says the debt report published by the IMF in Washington on Wednesday. About three out of four countries have been pursuing a more restrictive course in financial and monetary policy since 2022. Despite this, global debt is still eight percentage points above the level estimated before the pandemic.
Because of persistently high inflation, states could no longer spend as much money. Otherwise they would work against the interest rate hikes that the central banks are using to get inflation under control again. It must be a priority to build up financial buffers again in the next few years in order to be able to act in the next crisis.
USA and China mainly responsible
The increase in debt ratios is solely due to the USA and China. According to the IMF, without the two leading economic nations, there would be global declines. In the USA, the debt level is likely to increase by almost three percentage points per year from 2024. Before the coronavirus pandemic, the pace was expected to be about half that.
By 2028, the US debt level will climb to a good 136 percent of economic output. The IMF experts expect 105 percent for China by then. The annual increases are even more significant than in the USA.
