Global public debt hits $102 tn, South facing highest burden

Debt. IMF

Penang, 10 July (Kanaga Raja) — Global public debt rose to $102 trillion in 2024, with the developing countries accounting for nearly one-third of that amount, and paying a record $921 billion in interest, straining budgets and putting vital public services at risk, according to UN Trade and Development (UNCTAD).

In its latest “A World of Debt” report, released ahead of this week’s 4th International Conference on Financing for Development in Sevilla, Spain, UNCTAD said that public debt in developing countries has grown twice as fast as in richer nations since 2010.

The report said a record 61 developing economies spent at least 10% of their government revenues on interest payments, leaving less for critical areas like health, education and climate action.

Rising debt, falling investment and shrinking aid are among the biggest financing threats facing the world today and putting the Sustainable Development Goals (SDGs) further out of reach, said UNCTAD.

It said the UN’s upcoming 4th International Conference on Financing for Development offers a once-in-a-decade opportunity to mobilize finance at scale and reform global financial rules to better serve people and the planet.

RISING PUBLIC DEBT

Global public debt continues to increase rapidly, driven by cascading crises as well as the sluggish and uneven performance of the global economy. In 2024, public debt, comprising domestic and external general government debt, reached US$102 trillion, an increase of US$5 trillion from 2023, said the report.

The public debt landscape and its dynamics are marked by significant regional disparities. The nominal value of public debt in developing countries is rising twice as fast as in developed countries, it said, adding however that the latter continues to account for the lion’s share of global public debt (69%).

In 2024, public debt in developing countries reached US$31 trillion, accounting for 31% of the global total. This represents a substantial increase from their 16% share in 2010, said the report.

At the same time, this figure reveals the persistent asymmetries in global financial markets: although developing countries account for 39% of global GDP, they are home to 83% of the world’s population and face substantial SDG financing gaps, it added.

There are stark disparities among developing regions, as well as across countries. Over 24% of global public debt – equivalent to three-quarters of the total debt of developing countries – is owed by countries in Asia and Oceania, said the report.

“In comparison, Latin America and the Caribbean accounts for 5% and Africa for less than 2%. Nonetheless, the burden of this debt varies significantly based on the price and maturity of the debt finance countries have access to, and is further exacerbated by the inequalities embedded in the international financial architecture. Those least able to afford it often pay the most.”

The report said that this becomes evident when examining the evolution of the public debt relative to the size of developing economies.

After falling from a peak of 59% in 2020 to 53% in 2023, the median value of the public debt-to-GDP ratio in developing countries increased to 54% in 2024, implying that debt grew faster than GDP in over half of these countries.

According to the report, this trend reflects the combined effects of weak economic growth – further depressed by heightened uncertainty and geopolitical tensions – and persistently high costs of debt.

“Asia and Oceania stands out as the only region where the median debt-to-GDP ratio continued to decline, from 39% in 2023 to 38% a year later.”

Yet, it said that in the regions already burdened with much higher debt levels, the median debt-to-GDP ratio increased by up to half a percentage point, from 57.5% to 57.8% in Africa, and from 64% to 64.5% in Latin America and the Caribbean.

As a result, 58 developing countries (40% of those with available data) continue to struggle with high debt levels, exceeding the notional threshold of 60% of GDP, it added.

This includes 23 countries in Africa (43% of the region’s total), 18 countries in Latin America and the Caribbean (55%), and 17 in Asia and Oceania (31%).

The report said that the widening disparities in debt burdens and the increasing vulnerability of African, Latin American and Caribbean countries are reflected in the evolution of their external public debt.

It said external debt can complement domestic savings and provide foreign exchange to facilitate investment in sustainable development, when its dynamics remain sustainable.

Yet, it said developing countries face a challenging and unpredictable global environment, along with a financial architecture whose entrenched asymmetries exacerbate the impact of cascading crises on their debt sustainability.

“By limiting their access to affordable development finance, the current system intensifies the debt burdens of developing countries, pushing them to rely on more volatile and expensive external sources.”

The report said the limited size of domestic financial markets and relatively high levels of external public debt further increase vulnerability to external shocks and financial instability, especially during periods of heightened economic uncertainty.

For example, it said 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.

In 2023, developing countries’ external public debt reached US$3.3 trillion – an increase of roughly US$102 billion compared to the previous year.

Although the debt burden relative to exports has broadly receded to pre-COVID levels, it remains elevated, said the report.

For more than half of developing countries, external public debt equated to 88% or more of the value of exports of goods and services, and primary income receipts. This trend is driven primarily by export performance, which declined sharply during the pandemic, rebounded in 2021 and 2022, and grew slowly in 2023.

External public debt service burdens, however, show little sign of improvement, with related payments reaching as much as US$487 billion in 2023, it added.

It said of particular concern is the evolution of the ratio of external debt service to government revenues. Half of developing countries are allocating at least 8.6% of their public revenues to servicing external debt – nearly twice the 4.7% recorded in 2010.

The report said that this situation leaves fewer public resources available for investments in human capital and sustainable development, and is exacerbated by deteriorating global economic prospects that undermine revenue collection.

“The ratio of external public debt service relative to export revenues has also doubled, from a median value of 3.2% in 2010 to 6.5% in 2023. This implies that servicing external public debt now absorbs a much larger share of foreign exchange earnings in developing countries.”

In the same vein, the report said the number of developing countries spending more than 5% of their exports of goods and services, and primary income receipts on external public debt service has nearly doubled since 2010.

“In 2023, two out of three developing countries for which data is available were in that situation, including the majority of countries in Africa and Latin America and the Caribbean.”

The growing burden of external public debt reflects both the evolution of debt financing over the last decade and changes in monetary policy in key financial centres, the report observed.

It said that governments in developing countries borrow from various sources, including bilateral donors (other governments), multilateral institutions (such as multilateral development banks) and private creditors (including bondholders, banks, and other lenders).

Since 2010, the portion of external public debt owed to private creditors has risen across all regions, accounting for 60% of developing countries’ total external public debt in 2023.

While private creditors can expand the pool of available resources – as was the case between 2013 and 2023 – a strong reliance on them presents three main challenges, said the report.

First, lending by private creditors tends to be more volatile and prone to rapid shifts, especially during crises, as investors pull back their assets in a flight to safety. This can lead to resource outflows when countries can least afford them, it said.

For example, it said in 2023, developing countries paid US$48 billion more to their external private creditors in debt servicing than they received in fresh disbursements. This resulted in a negative net resource transfer, which offset the net inflows from multilateral and bilateral external creditors, leading to an overall net debt outflow of US$25 billion.

In 2023, a total of 51 developing countries experienced net outflows of debt finance – nearly twice as many as in 2010 – with most of the affected countries located in Africa and Asia and Oceania.

The growth in the number of countries experiencing net debt outflows highlights the widespread nature of the problem, which is exacerbated by rising borrowing costs, UNCTAD pointed out.

Second, borrowing from private sources on commercial terms is more expensive than financing from multilateral and bilateral sources, which tends to be concessional, said the report.

“The inequalities embedded in the international financial architecture exacerbate these differences in the cost of financing.”

The borrowing costs of most developing countries far exceed those of developed countries. Developing regions borrow at rates that are two to four times higher than for the United States, it noted.

This increases the resources needed to pay creditors, making it more difficult for developing countries to finance investments while preserving their debt sustainability.

Moreover, the report said developing countries’ spreads (i.e. the difference between their bond yields and those of reference markets, such as the United States) can increase sharply in times of global economic uncertainty, as investors withdraw their funds to place them in assets with lower perceived risk.

It said that developing countries’ spreads have widened since 2020, especially in Africa. These asymmetric dynamics raise the cost of borrowing for developing countries precisely when they need more resources for counter-cyclical policies.

Third, the growing reliance on private creditors adds to the complexity of the creditor base. This makes debt restructuring more difficult, as it requires negotiating with a broader range of creditors with diverging interests and legal frameworks, the report underlined.

“Delays and uncertainties increase the cost of resolving debt crises. The relationship between restructuring costs and time required for completion is highly relevant in the current context.”

It said debt restructurings since 2020 are taking longer to complete compared to episodes in previous decades, underscoring the need for improved debt crisis resolution mechanisms.

PEOPLE PAY THE PRICE

The report also said the interplay of a weakening global economy, heightened uncertainty, and relatively high costs of capital worldwide since 2022 is having a direct impact on public budgets across the world.

Developing countries face particularly challenging conditions due to their widening development finance gaps, shocks stemming from recent trade policy changes, and declines in aid flows, it added.

Against this backdrop, developing countries’ net interest payments on public debt reached US$921 billion in 2024 – a 10% increase compared to 2023, said the report.

Currently, half of developing countries allocate at least 8% of government revenues to interest payments, a figure that has doubled over the past decade, it noted.

Furthermore, it said the rising pressure of interest payments is substantial across regions, particularly in Africa and Latin America and the Caribbean, where at least half of the countries allocate a double-digit share of their public revenues to interest payments.

Overall, in 2024, 61 developing countries allocated 10% or more of government revenues to interest payments – twice as many as in 2010.

The report said that developing countries’ interest payments are not only growing fast relative to public revenues; they are also outpacing critical public expenditures such as on health and education.

It said the rapid increase in interest payments is constraining spending in other critical areas across developing countries.

For example, between 2021 and 2023, Africa spent US$70 per capita on interest payments -significantly more than the US$63 per capita it spent on education, and the US$44 per capita on public health.

Meanwhile, in Latin America and the Caribbean, per capita health expenditure was only slightly higher than interest payments.

The number of countries where interest payments surpassed spending on these essential services is rising. From 2021 to 2023, 22 countries spent more on interest payments than on education, and 45 countries spent more on interest than on health, said the report.

It also said that a total of 3.4 billion people live in countries that spend more on interest payments than on either health or education, adding that this situation is “untenable and must change.” – Third World Network