The alarming surge in global debt burden calls for urgent reforms to the international financial systems to safeguard a prosperous future for both people and the planet, the United Nations has said.
In a new report, the UN Trade and Development (UNCTAD) sounded the alarm over the escalating debt burdens to global prosperity. Titled ‘A world of debt: A growing burden to global prosperity’, the report highlights the unprecedented surge in public debt – comprising both domestic and external general government borrowing – which reached a historic peak of $97 trillion in 2023, up by a notable $5.6 trillion from the previous year.
In 2023, public debt in developing countries reached $29 trillion, accounting for 30 per cent of the global total. This is a substantial increase from a 16 per cent share in 2010 and reflects the rapid growth of public debt in developing countries.
The report said the contrast among developing regions is stark. Over three-quarters of this debt is owed by countries in Asia and Oceania, while Latin America and the Caribbean account for 17 per cent and Africa for just seven per cent. The burden of this debt varies significantly with countries’ ability to repay it and is exacerbated by the inequality embedded in the international financial architecture: Those least able to afford it end up paying the most.
It noted that this dynamic becomes evident when examining the evolution of public debt relative to the size of developing economies. In over half of these countries, public debt has declined relative to GDP. The median value of the public debt-to-GDP ratio fell from a peak of 60.4 per cent in 2020 to 54.7 per cent in 2023. This decline is due to high global inflation, which increases nominal GDP, and stronger-than-expected real GDP growth in middle-income countries in Asia and Oceania, and to a lesser extent in Latin America and the Caribbean.
Consequently, even though the stock of public debt increased also in these regions, the median debt-to-GDP ratios have decreased. The report noted that developing countries are grappling with an international financial architecture, whose entrenched asymmetries exacerbate the impact of cascading crises on sustainable development.
This system intensifies their debt burden by limiting access to affordable development finance and pushing them to borrow from more volatile and expensive external sources. The limited size of domestic financial markets and higher levels of external public debt make them more vulnerable to external shocks and financial instability.
For example, when global financial conditions change or international investors become more risk-averse, borrowing costs can suddenly spike. Additionally, if a country’s currency devalues, debt payments in foreign currency can soar, leaving less money for development spending.
Consequently, developing countries are forced to increase the transfer of resources to their external creditors, while resolving debt crises becomes more difficult.
Developing countries’ external public debt reached $3.2 trillion in 2022. For half of these countries, external public debt was at least as high as 28.4 per cent of GDP and 92.4 per cent of their exports.
Both indicators show improvements since 2020, marginally in the case of GDP and substantially in the case of exports. The main driver of the decline in the external public debt-to-export ratio is the evolution of exports, which experienced a sharp slump during the pandemic followed by a strong recovery amid high commodity prices in 2022.
Developing countries’ interest payments are not only growing fast, but they are outpacing growth in critical public expenditures such as health and education.
