Launch of the UN Global Crisis Response Group's report 'A world of debt: A growing burden to global prosperity'
12 July 2023
[check against delivery]
Thank you, Secretary-General Guterres, for your insightful and passionate remarks.
So, let me go into the technical aspects and share with you the report "A world of debt: A growing burden to global prosperity" to supplement the Secretary-General’s remarks.
First, we must recognize the sheer magnitude and speed at which public debt has grown. Since 2000, global public debt has surged more than fivefold, significantly outpacing global GDP growth, which has only tripled in the same period.
Public debt can be vital for development when Governments use it to finance their expenditures, to protect and invest in their people, and to pave their way to a better future.
However, it can also be a heavy burden when public debt grows too much or too fast. This is what is happening today across the developing world. Public debt has reached colossal levels, largely due to two factors.
Financing needs soared with countries’ efforts to fend off the impact of cascading crises on development. These include the COVID-19 pandemic, the cost-of-living crisis, and climate change.
An inequal international financial architecture makes developing countries’ access to financing inadequate and expensive.
They have experienced rising borrowing costs due to interest rates increases, currency devaluations and sluggish growth. These factors compromise their ability to react to emergencies, tackle climate change and invest in their people and their future.
As a result, the number of nations facing high levels of debt has more than doubled for countries with a ratio of 60% of Debt to GDP, rising from just 22 in 2011 to 59 in 2022. For reference, this is higher than at any point of the era of the Heavily Indebted Poor Country (HIPC) initiative, which is a high watermark of the multilateral community has done and could do when debt becomes a threat to development. (This ratio is the benchmark used by the IMF as one of the indicators to assess debt burdens.)
My second point is that developing countries are dealing with an international financial architecture that exacerbates the negative impact of cascading crises on sustainable development. The burden of debt on development is intensified by a system that constrains developing countries access to development finance and pushes them to borrow from more expensive sources, increasing their vulnerabilities and making it even harder to resolve debt crises.
External public debt, the part of a government's debt owed to foreign creditors, increased from 19% of GDP to 29% of GDP in 2021.
Comparing debt levels to developing countries’ ability to generate foreign exchange through exports shows that their ability to generate sufficient revenue to service their external debt obligations has also been deteriorating. The share of external public debt to exports increased from 71% in 2010 to 112% in 2021. During the same period, external public debt service as a share of exports increased from 3.9% to 7.4%.[1]
My third point: As the Secretary-General said, the composition of debt has changed, complicating efforts to manage and restructure it.
In 2021, private creditors held 62% of developing countries' external public debt, up from 47% a decade ago.
While these private sources can provide essential liquidity, their terms are often far less favourable than those offered by multilateral and bilateral sources. Furthermore, when it's time to restructure, the process becomes increasingly complex and costly due to the diverse array of creditors involved.
We have seen this repeatedly, despite efforts at the G20 and elsewhere, to provide mechanisms for debt restructuring, such as the G20 Common Framework, and the more recent IMF Global Sovereign Debt Roundtable.
This composition of debt also means that developing countries also face greater vulnerability to external shocks. Abrupt changes in global financial conditions or sudden currency devaluations can dramatically increase the cost of servicing debt, reducing available funds for critical development spending. This is exactly what we have seen in the last couple of years, as we have highlighted in previous UN GCRG reports.
My fourth point is to emphasize what the Secretary-General said – that it is people who pay the price for this unsustainable debt burden.
Interest payments in developing countries have grown faster than public spending on health, education and investment over the last decade. The rapid increase of interest payments is squeezing out spending in these key areas.
In Africa, the amount spent on interest payments is higher than spending on either education or health. Developing countries in Asia and Oceania (excluding China) are allocating more funds to interest payments than to health. Similarly, in Latin America and the Caribbean, developing countries are devoting more money to interest payments rather than to investment. This burden also constraints the flow of essential finance to small local businesses in developing countries limiting productive investments. Across the world, rising debt burdens are keeping countries from investing in sustainable development.
All this has made countries more vulnerable. We have gone from a fast-moving crisis to a slow-moving crisis that is more difficult to mobilize action for. There is complacency because for now, markets are not suffering, but people are. According to the GCRG analysis:
- 103 countries are highly vulnerable in at least one of the three pillars – food, energy or finance – up from 94 last year.
- 49 perfect storm countries, with the highest vulnerability score across all three pillars, up from 36 last year
- 30 countries have become more vulnerable since last year, while only 10 countries have become less vulnerable.
- 20 out of the 49 most vulnerable countries are in Sub-Saharan Africa. Eight are in Latin America and the Caribbean, six in the Middle East and North Africa, six in East Asia and the Pacific, five in Europe and Central Asia, and four in South Asia.
Finally, an announcement. We have launched the "A world of debt report" in an interactive website, hosted at the UN, with an interactive dashboard where every person and every policymaker in the world can see what it is the state of debt in their own country.
So this report is not only a paper you can read, but also and quite literally a tool that you can use.
This report is the result of a collective, one UN effort, led by UNCTAD, all UN Regional Economic Commissions, UNDP and UNDESA. As a result, this report is rich with regional data, and regional stories, which are included in the report website, and which I invite all of you to read.
Lastly, let me say thanks to all the amazing teams who have been working tirelessly on this. My own technical team here at UNCTAD, and all the Regional Economic Commissions, who have really outdone themselves.
[1] For comparison, the 1953 London Agreement on Germany’s war debt limited the amount of export revenues that could be spent on external debt servicing (public and private) to 5% to avoid undermining the recovery.