This UN debt initiative is different

Economic development requires financing that is affordable, accessible and has maturities matched to development outcomes. Yet for most developing countries, none of the above apply.

- MAHMOUD MOHIELDIN PAOLO GENTILONI TREVOR MANUEL YAN WANG

Instead, an escalating debt disaster is unfolding across much of the developing world, exacerbated by a series of cascading global crises.

The urgency of the current crisis cannot be overstated. Over half of the 68 countries eligible for the International Monetary Fund’s Poverty Reduction and Growth Trust (PRGT) are now facing debt distress — more than double the number in 2015. But even this figure fails to capture the scale of the problem, as many countries outside the PRGT framework are also grappling with crippling debt and liquidity challenges. Between 2017 and 2023, developing countries’ average debt-service costs soared by nearly 12% per year, threatening to cripple the growth rate of their exports and remittance earnings. Consequently, external debt sustainability deteriorated in two-thirds of developing countries over this period, including in 30 of 45 African countries with available data.

Despite their unsustainable debt burdens, many countries are reluctant to default, owing to inefficient debt resolution mechanisms and prohibitively high political and economic costs for their creditor obligations over their own development, as ballooning debt-service payments crowd out vital investments in infrastructure and human capital, stifling growth and delaying climate action. Today, 3.3 billion people live in countries that spend more on debt servicing than health, care and education. The vast majority of live in middle-income countries.