- The rising debt costs are draining vital public resources needed for development. About 3.3 billion people – almost half of humanity – now live in countries that spend more money paying interest on their debts than on education or health.
- Most countries are spending more on interest payments than on investments.
- Potential impact of debt servicing on a government's ability to fund essential public investments is debilitating.
- A key recommendation is to boost loans – characterized by lower interest rates and longer repayment terms.
Our Country Sovereign / Sub Sovereign Debt Funding Program ™ is meant to help countries escape the Debt Tsunami. Country debt as % of GDP is illustrated in the Infographic below as well as outlined at the end of the article.
Fig 1.1 - Central Government Debt as percentage of GDP.
- Global debt has surged to unprecedented levels, hitting a record $307 trillion in 2023, as reported by the Institute of International Finance (IIF). This staggering figure encompasses borrowing by governments, businesses, and households worldwide, reflecting the extensive financial obligations across various sectors of the economy. Notably, the escalation in debt levels has been particularly pronounced in developed countries like the United States, Japan, the United Kingdom, and France, contributing significantly to the overall global debt burden.
- Amidst the backdrop of this mounting debt, concerns about an impending recession persist, with 6 out of 10 chief economists anticipating a weakening global economy in the current year, according to the World Economic Forum's latest Chief Economists Outlook. The sudden surge in inflation has further compounded these worries, exacerbating the strain on the already burgeoning global debt.
- Global debt, in essence, constitutes the collective borrowing undertaken by governments, corporations, and individuals to finance various activities and investments. However, the sustained escalation of debt levels has raised alarm bells, signaling potential risks and vulnerabilities within the global financial system. In 2021, global debt reached an unprecedented $303 trillion, marking a substantial increase from the previous record set in 2020 at $226 trillion, as documented by the International Monetary Fund (IMF) in its Global Debt Database. This significant surge in debt, the largest observed since the Second World War, underscores the magnitude of the challenges posed by mounting debt burdens on the global economy.
- Moreover, the continuous rise in global debt has propelled the global debt-to-GDP ratio to alarming levels, reaching 336% for the second consecutive quarter. The Institute of International Finance (IIF) cautions that as interest rates climb and debt levels escalate, governments are likely to face heightened pressure on interest expenses, exacerbating domestic debt strains.
- The ramifications of escalating global debt are multifaceted and far-reaching, impacting economies at both the macro and micro levels. Emerging and developing economies, in particular, have borne the brunt of previous debt crises, as evidenced by World Bank research. The International Monetary Fund (IMF) estimates that to meet debt obligations, at least 100 countries will need to curtail spending on critical sectors such as health, education, and social protection. The implications are profound, potentially impeding socio-economic development and exacerbating inequality.
- Against this backdrop, the International Debt Report 2023 by the World Bank reveals that low- and middle-income countries faced an unprecedented financial burden, with a staggering $443.5 billion expended in servicing their external public and publicly guaranteed debt in 2022 alone. Indermit Gill, the World Bank Group’s Chief Economist and Senior Vice President, underscores the gravity of the situation, warning that record debt levels and soaring interest rates have placed many nations on a precarious path towards crisis.
- The repercussions of burgeoning debt extend beyond the realm of governments to encompass businesses and households, exacerbating financial vulnerabilities and posing substantial risks to economic stability. For businesses, servicing high levels of debt can constrain investment in job creation and expansion, while also increasing the likelihood of insolvency for enterprises unable to meet repayment obligations. Similarly, households grappling with soaring debt burdens may be compelled to curtail essential expenditures, jeopardizing their financial well-being, particularly among low-income households.
- Moreover, the adverse effects of escalating debt burdens are acutely felt in low-income countries, where debt distress can precipitate prolonged recessions, rampant inflation, and a diversion of resources away from critical sectors like health and education. The IMF and World Bank estimate that approximately 60% of low-income countries are teetering on the brink of debt distress, underscoring the urgent need for concerted efforts to address this burgeoning crisis.
- Inflationary pressures have further exacerbated the debt conundrum, prompting central banks to adopt measures such as interest rate hikes to curb inflationary trends. However, these actions invariably lead to higher borrowing costs, compounding the financial strain on indebted nations and exacerbating the debt spiral.
Fig 1.2 - How do developing countries compare to developed countries across 8 metrics ?
- A noteworthy trend is the disproportionate contribution of developed nations to the surge in global debt, with over 80% of the debt buildup in 2023 emanating from developed economies. Countries such as the United States, Japan, the United Kingdom, and France have witnessed significant increases in debt levels, underscoring the global nature of the debt crisis. Additionally, emerging markets including China, India, and Brazil have also experienced notable spikes in debt, further amplifying concerns about the sustainability of debt levels worldwide.
A world of debt A growing burden to global prosperity
Why It's Significant?
- Public debt plays a pivotal role in fostering development. Governments utilize it to fund essential expenditures, safeguard their citizens, and chart a path toward a brighter tomorrow.
- However, excessive or rapid growth in public debt can become an onerous burden, particularly evident across the developing landscape today. The escalation of public debt to monumental levels is primarily attributable to two key factors.
- Firstly, there has been a surge in financing needs as nations strive to mitigate the far-reaching impacts of successive crises, including the COVID-19 pandemic, the cost-of-living crisis, and the looming threat of climate change.
- Secondly, an unequal international financial architecture renders access to financing for developing countries inadequate and prohibitively expensive.
- The weight of this debt presents a significant impediment to development. For developing nations, debt translates into a substantial burden characterized by limited access to financing, escalating borrowing costs, currency devaluations, and sluggish economic growth. These challenges severely hamper their capacity to respond to emergencies, combat climate change, and invest in the well-being and future of their citizens.
- Consequently, countries find themselves confronted with the untenable dilemma of servicing their debt or prioritizing the needs of their populace. Presently, over 3.3 billion individuals reside in nations where interest payments eclipse investments in education or healthcare. Such a debt-laden world disrupts prosperity for both people and the planet.
This status quo demands change.
- The United Nations has outlined a comprehensive roadmap of multilateral actions aimed at addressing the global debt burden and advancing sustainable development. Presented in the Common Agenda Policy Brief on Reforms to the International Financial Architecture and the SDG Stimulus, this roadmap focuses on three critical areas of action:
- Addressing the exorbitant cost of debt and the escalating risks of debt distress.
- Significantly enhancing access to affordable, long-term financing for development.
- Expanding contingency financing options for countries in dire need.
- The effective implementation of these measures is imperative to unlock the resources necessary for constructing a more prosperous, inclusive, and sustainable global community.
Country Debt As % OF GDP
- Afghanistan no data
- Albania 66.46
- Algeria 52.4
- Angola 67.05
- Antigua and Barbuda 90.56
- Argentina 84.47
- Armenia 49.27
- Australia 38.63
- Austria 60.52
- Azerbaijan 20.68
- Bahamas, The 84.3
- Bahrain 117.59
- Bangladesh 39.09
- Barbados 126.83
- Belarus no data
- Belgium 86.62
- Belize 64.14
- Benin 52.39
- Bhutan 124.79
- Bolivia 67.68
- Bosnia and Herzegovina 29.56
- Botswana 20.35
- Brazil 81.48
- Brunei Darussalam 2.06
- Bulgaria 31.55
- Burkina Faso 54.31
- Burundi 68.3
- Cabo Verde 127.41
- Cambodia no data
- Cameroon 41.3
- Canada 49.83
- Central African Republic 50.69
- Chad 50.37
- Chile 37.98
- China, People's Republic of no data
- Colombia 47.47
- Comoros 29.06
- Congo, Dem. Rep. of the no data
- Congo, Republic of 99.56
- Costa Rica 63.85
- Côte d'Ivoire 56.75
- Croatia 66.69
- Cyprus 122.51
- Czech Republic 45.77
- Denmark 23.1
- Djibouti 40.61
- Dominica 110.73
- Dominican Republic 45.2
- Ecuador no data
- Egypt no data
- El Salvador 55.49
- Equatorial Guinea 27.15
- Eritrea 163.77
- Estonia 18.83
- Eswatini 46.59
- Ethiopia no data
- Fiji 86.44
- Finland 60.22
- France 92.15
- Gabon 55.05
- Gambia, The 83.9
- Georgia no data
- Germany 45.95
- Ghana 88.77
- Greece 192.41
- Grenada 64.51
- Guatemala 29.59
- Guinea 33.4
- Guinea-Bissau 79.53
- Guyana 27.81
- Haiti 25.01
- Honduras 53.37
- Hong Kong SAR no data
- Hungary 76.65
- Iceland 65.93
- India 55.45
- Indonesia 39.48
- Iran 34.01
- Iraq 43.3
- Ireland 50.69
- Israel 59.23
- Italy 140.57
- Jamaica 87.96
- Japan 214.27
- Jordan 89.42
- Kazakhstan 20.25
- Kenya 67.94
- Kiribati 15.21
- Korea, Republic of 48.05
- Kuwait 2.92
- Kyrgyz Republic 53.53
- Lao P.D.R. 128.51
- Latvia 41.85
- Lebanon no data
- Lesotho 57.91
- Liberia 55.37
- Libya no data
- Lithuania 37.59
- Luxembourg 20.82
- Madagascar 56.99
- Malawi 70.14
- Malaysia 60.37
- Maldives 114.94
- Mali 53.22
- Malta 52.34
- Marshall Islands no data
- Mauritania 47.74
- Mauritius no data
- Mexico 40.86
- Micronesia, Fed. States of no data
- Moldova 34.68
- Mongolia 61.15
- Montenegro 69.52
- Morocco 68.79
- Mozambique 104.52
- Myanmar 63.9
- Namibia 71.28
- Nauru no data
- Nepal 43.83
- Netherlands no data
- New Zealand 52.79
- Nicaragua 45.96
- Niger 51.08
- Nigeria 34.93
- North Macedonia 50.6
- Norway 13.17
- Oman 40.15
- Pakistan 75.75
- Panama no data
- Papua New Guinea 49.19
- Paraguay 34.16
- Peru 30.41
- Philippines no data
- Poland 40.37
- Portugal 118.77
- Qatar 45.31
- Romania 47.63
- Russian Federation no data
- Rwanda 64.43
- Saint Kitts and Nevis 24.26
- Saint Lucia 85.27
- Saint Vincent and the Grenadines 86.32
- Samoa 43.73
- San Marino 81.17
- São Tomé and Príncipe 58.1
- Saudi Arabia 22.57
- Senegal 74.97
- Serbia 50.81
- Seychelles 63.43
- Sierra Leone 98.85
- Singapore 135.86
- Slovak Republic 66.44
- Slovenia 64.16
- Solomon Islands 16.85
- South Africa 71.02
- South Sudan, Republic of 39.64
- Spain 102.25
- Sri Lanka 117.66
- Sudan 127.55
- Suriname 123.16
- Sweden 37.03
- Switzerland 14.4
- Syria no data
- Taiwan Province of China 26.08
- Tajikistan no data
- Tanzania no data
- Thailand 53.56
- Timor-Leste 16.27
- Togo 68.04
- Tonga 47.54
- Trinidad and Tobago 52.1
- Tunisia 79.36
- Türkiye, Republic of 26.88
- Turkmenistan 5.19
- Tuvalu 7.59
- Uganda 50.83
- Ukraine 83.12
- United Arab Emirates no data
- United Kingdom 100.75
- United States 110.15
- Uruguay 51.28
- Uzbekistan no data
- Vanuatu 45.75
- Venezuela no data
- Vietnam no data
- West Bank and Gaza 59.78
- Yemen 73.53
- Zambia no data
- Zimbabwe 92.82
In conclusion, the exponential growth of global debt poses significant challenges to economic stability and growth, warranting urgent attention and concerted action from policymakers, financial institutions, and stakeholders across the globe. Addressing the root causes of the debt crisis, enhancing debt transparency, and fostering sustainable debt management practices are imperative to mitigating the risks associated with burgeoning debt burdens and safeguarding the long-term prosperity of nations worldwide.