The report titled “The Growing Burden on Global Prosperity” reveals an unprecedented global debt crisis in the world.Currently, about 3.3 billion people live in countries where the interest payment on debt is more than the expenditure on education or health.
Global Debt
- Debt is the amount of money that a person borrows and later has to repay.
- Global debt refers to the total amount of debt owed by governments, businesses and individuals around the world.
- It includes both public and private debt.
Composition of global debt
- Public debt: This is the amount of money owed by governments to domestic and foreign lenders. It is usually financed by issuing bonds, Treasury bills or borrowing from international organisations.
- Private debt: This is the amount of money owed by businesses and individuals to banks, lenders and other financial institutions. It includes mortgages, corporate bonds, student loans and credit card debt.
Report highlights
Rapid rise in public debt
- The Institute of International Finance (a global association of financial institutions) estimates that global debt (including borrowings by households, businesses and governments) will reach US$315 trillion in 2024, 3 times the global Gross Domestic Product (GDP).
- Global public debt is rising rapidly due to a combination of recent crises (e.g. COVID-19, rising food and energy prices, climate change, etc.) and the sluggish global economy (slow economic growth, rising bank interest rates, etc.).
- Net interest payments on public debt in developing countries are set to reach US$847 billion in 2023, an increase of 26% compared to 2021.
Regional disparities in debt growth
- It will reach US$29 trillion (30% of the global total) in 2023, up from 16% in 2010.
- The number of African countries with a debt-to-GDP ratio of more than 60% has increased from 6 to 27 between 2013 and 2023.
- This is due to unpredictable global issues that are impacting their expansion and a slowing economy resulting in a decline in household income.
- Public debt in developing countries is growing at twice the rate of developed countries.
- Africa’s debt burden is growing faster than its economy, resulting in a rising debt-to-GDP ratio.
High share of debt servicing in income and impact on climate initiatives
- Nearly 50% of developing countries are now devoting at least 8% of their government revenue to servicing their debts, a number that has doubled in the last ten years.
- Developing countries are currently spending a larger share of their GDP on interest payments (2.4%) than on climate efforts (2.1%).
- Their ability to tackle climate change is being hampered by debt. To meet the goals of the Paris Agreement, climate investment needs to be increased to 6.9% by 2030.
Changes in Official Development Assistance
- ODA is government aid aimed at promoting economic growth and welfare in developing countries.
- Recent changes in the nature of foreign aid have made it more difficult for developing countries to repay debt, such as:
- Decrease in overall aid: ODA has been declining for two consecutive years, falling to US$164 billion in 2022.
- Increase in loans and reduction in grants: The proportion of aid given in the form of loans is increasing, from 28% in 2012 to 34% in 2022. This may increase the debt burden on developing countries.
- Reduced support to tackle existing debt: Funds allocated for debt management strategies such as debt restructuring and relief have fallen sharply, from US$4.1 billion in 2012 to just US$300 million in 2022. This could restrict their access to credit in the future and make it more difficult for them to manage their current debt.