The UN said 3.3 billion people now live in countries where debt interest payments are greater than expenditure on health or education.
In a report, “A world of debt. A growing burden to global prosperity” the UN indicated that there have been a five-fold surge in public debt levels since 2000, adding that it demands immediate action to tackle the escalating crisis affecting developing countries in particular.
Presenting the report on Wednesday, the UN Secretary-General António Guterres said: “On average, African countries pay four times more for borrowing than the United States and eight times more than the wealthiest European economies. A total of 52 countries – almost 40 percent of the developing world – are in serious debt trouble.”
According to a statement by the UN, this disparity in interest rates highlights the inherent inequality in the international financial system, burdening developing countries disproportionately.
“Today, half of all developing nations spend a minimum of 7.4% of their export revenues on servicing external public debt.
“It is alarming that some governments are compelled to spend more on servicing debt than on critical sectors like health and education. Disturbingly, the report shows that at least 19 developing nations allocate more money to interest payments than education, and 45 allocate more to interest than health expenditure.”
The increasing reliance on private creditors, who offer more expensive debt and shorter maturities than official sources, has also complicated debt restructuring for developing countries, the UN added.
It said currently, private creditors hold 62% of external public debt, up from 47% a decade ago. There is, however, no mechanism to address how to restructure debt across different creditor classes.
The United Nations further called for a comprehensive reform of the International Financial Architecture, including the debt architecture, to foster a more inclusive system that empowers developing countries to actively participate in the governance of the international financial system.
“Addressing the high cost of debt and the mounting risk of debt distress is of utmost importance. Establishing a debt workout mechanism is crucial to expedite progress under the G20 Common Framework for Debt Treatment, which has faced challenges due to creditor coordination issues and the absence of automatic debt service suspension clauses,”the UN added.
Measures such as enhancing the use of Special Drawing Rights, temporarily suspending IMF surcharges, and broadening access to emergency financing through increased quotas must be pursued, it added.
The UN also recommended a substantial increase in affordable long-term financing is also required. To get there, we will need to transform and expand Multilateral Development Banks to support sustainable long-term development and mobilize more private resources on more equitable terms. Additionally, there is an urgent need for more concessional finance to fulfill aid and climate finance commitments.
The UN Global Crisis Response Group on Food, Energy, and Finance (GCRG) was established in March 2022 by UN Secretary-General António Guterres to address the interconnected crises of food, energy, and finance.
