New Delhi: The global economy is standing at a critical juncture as rising public debt levels threaten to derail development progress, strain fiscal systems, and increase poverty across the developing world. The United Nations Conference on Trade and Development (UNCTAD), in its recently released ‘World of Debt Report 2024’, paints a grim picture of the global debt scenario, revealing that global debt is projected to reach a staggering USD 315 trillion in 2024—nearly three times the global GDP.
This alarming surge is driven by post-pandemic recovery measures, rising interest rates, increasing costs of climate action, and geopolitical conflicts. The report calls for urgent international action to restructure debt, enhance financial governance, and protect developing economies from sliding further into debt distress.
Global Public Debt Reaches Unprecedented Levels
According to UNCTAD’s comprehensive analysis, global public debt surged to USD 97 trillion by the end of 2023, marking a sharp increase compared to previous years. Notably, developing countries are facing the brunt of this crisis, with their debt levels growing twice as fast as those of developed nations.
Key Highlights:
- India’s public debt reached USD 2.9 trillion in 2023.
- The share of developing countries in global debt increased from 16% in 2010 to 30% in 2023.
- The rising debt is attributed to pandemic-related borrowing, energy and food price inflation, global economic slowdown, and costly climate initiatives.
UNCTAD emphasizes that the current trajectory of debt accumulation could push several low- and middle-income countries (LMICs) towards default, triggering widespread economic instability.
Debt Servicing Costs Exceed Social Spending in Developing Nations
One of the most distressing revelations of the report is that 54 developing nations now spend more on interest payments than on essential social sectors like healthcare, education, and welfare.
- Interest payments by developing countries are reported to be 2 to 12 times higher than those paid by developed countries.
- 50% of developing nations are now allocating at least 8% of their government revenue solely to debt servicing—a figure that has doubled over the past decade.
This growing imbalance not only limits the ability of governments to invest in social infrastructure but also worsens poverty and inequality.
Liquidity Crisis Worsens as Private Creditors Withdraw Funds
Further compounding the problem is the worsening liquidity crisis:
- Nearly USD 50 billion has been pulled out by private creditors from developing countries, severely impacting their liquidity positions.
- The creditor base is dominated by Western institutions, including private lenders, multilateral agencies, and bilateral creditors.
The structure of this creditor base makes debt restructuring expensive and challenging, as private investors often resist write-offs or concessional terms.
Global Financial System Favors Developed Nations: Rising Borrowing Costs Hurt Developing Economies
The report sheds light on stark inequalities embedded within the global financial system. Developing countries are compelled to borrow at significantly higher interest rates:
- Interest rates on official loans doubled to over 4% in 2023, while private creditor rates spiked to 6%—the highest in 15 years.
- Consequently, LMICs and other developing nations paid far more in servicing their debts compared to developed economies, further draining their financial resources.
Such rising borrowing costs exacerbate debt vulnerabilities and reduce fiscal flexibility for development and poverty alleviation programs.
Climate Action Compromised as Debt Servicing Consumes National Budgets
An equally worrying trend highlighted in the report is the growing competition between debt repayments and climate financing:
- Developing nations now spend 2.4% of their GDP on debt servicing, compared to 2.1% on climate initiatives.
- Achieving the Paris Agreement’s climate goals would require scaling up climate investments to 6.9% of GDP by 2030.
The current mismatch severely undermines global climate action and forces developing nations to prioritize debt repayments over green development projects.
Decline in Official Development Assistance (ODA) and Debt Relief
UNCTAD’s analysis also points to a troubling decline in official development assistance and debt relief mechanisms:
- Loans now account for 34% of ODA, up from 28% in 2012, worsening the debt burdens of poorer nations.
- Debt relief funding, once a crucial lifeline, has plummeted from USD 4.1 billion in 2012 to a meager USD 300 million in 2022.
This decline makes it increasingly difficult for developing nations to escape the debt trap, forcing them to divert funds from critical social services and infrastructure projects.
World Bank’s International Debt Report 2024 Echoes Similar Concerns
Echoing UNCTAD’s findings, the World Bank’s International Debt Report 2024 reveals significant pressure on developing nations:
- External debt of Low- and Middle-Income Countries (LMICs) reached USD 8.8 trillion in 2023, marking an 8% increase since 2020.
- Debt servicing costs hit a record USD 1.4 trillion, with interest payments surging by 33% to USD 406 billion.
- IDA-eligible countries (the poorest nations) paid USD 96.2 billion in debt servicing, with USD 34.6 billion in interest costs alone.
Some nations now allocate up to 38% of their export earnings just to cover interest payments, raising alarms about the long-term viability of their economic structures.
Challenges Ahead: Rising Debt Threatens Global Stability and Development Goals
The combined findings of UNCTAD and the World Bank underscore several risks:
1. Debt Sustainability Crisis
Mounting debt-to-GDP ratios and surging interest payments threaten economic stability and raise the specter of sovereign defaults.
2. Inflation and Monetary Tightening
Interest rate hikes by global central banks have further inflated borrowing costs, tightening fiscal space for developing nations.
3. Climate Financing Gaps
With most resources consumed by debt repayments, climate financing is being neglected, making it harder for poorer nations to meet emission targets or invest in sustainable infrastructure.
4. Growing Global Inequality
The current debt system disproportionately impacts poorer nations, widening the global inequality gap and increasing the risk of social and economic unrest.
Proposed Solutions: Urgent Multilateral Action Needed
UNCTAD and global financial institutions stress the urgent need for coordinated global action:
- Debt Restructuring Frameworks:
Reinforce international mechanisms to manage debt distress and improve cooperation among private and multilateral creditors. - Expand Contingency Financing:
Boost emergency support programs such as Special Drawing Rights (SDRs) allocations to improve liquidity for struggling nations. - Revitalize Development Assistance:
Shift ODA back towards grants rather than loans to prevent debt accumulation in low-income countries. - Inclusive Financial Governance:
Empower developing nations with greater participation in global financial decisions to ensure equitable representation. - Prioritize Climate Finance:
Establish robust mechanisms for scaling up green investments and fulfilling climate commitments, particularly in vulnerable regions.
Way Forward: Global Debt Management Must Prioritize Human Development and Climate Goals
The worsening global debt crisis demands immediate attention. Both UNCTAD and the World Bank warn that failure to address the current debt challenges will have far-reaching consequences—jeopardizing poverty reduction, derailing sustainable development goals, and weakening climate resilience efforts worldwide.
Strengthening international cooperation, providing debt relief, and rethinking the global financial architecture are critical to ensuring that developing nations are not trapped in endless cycles of debt.
Frequently Asked Questions (FAQs)
1. What is the total global debt projection for 2024 according to UNCTAD’s World of Debt Report?
The UNCTAD World of Debt Report 2024 projects global debt to reach USD 315 trillion in 2024, nearly three times the global GDP. This includes borrowings by governments, businesses, and households worldwide. The surge is driven by post-pandemic recovery borrowing, rising interest rates, geopolitical tensions, and increased climate action costs.
2. Why are developing countries facing a bigger debt burden compared to developed nations?
Developing countries are grappling with a heavier debt burden due to higher borrowing costs, limited access to concessional loans, and structural inequalities in the global financial system. According to the report, interest rates for developing nations are 2 to 12 times higher than those for developed economies. Additionally, 54 developing countries now spend more on interest payments than on critical sectors like health and education.
3. How is the debt crisis impacting climate change investments in developing countries?
The debt crisis is severely undermining climate action in developing nations. Currently, these countries spend 2.4% of their GDP on debt servicing, while allocating only 2.1% to climate initiatives. To meet the Paris Agreement targets, climate investment needs to increase to 6.9% of GDP by 2030. Rising debt repayments are shrinking fiscal space, making it harder to fund renewable energy and adaptation projects.
4. What role do private creditors play in worsening the global debt crisis?
Private creditors significantly impact the debt crisis by charging high interest rates (up to 6%) and withdrawing funds from vulnerable economies. In 2023, private creditors pulled out nearly USD 50 billion from developing nations, worsening liquidity issues. Unlike multilateral institutions, private lenders are less willing to participate in debt restructuring, making solutions more complex and expensive.
5. What solutions does UNCTAD recommend to manage the growing global debt crisis?
UNCTAD recommends several urgent measures, including:
- Coordinated global debt restructuring frameworks involving private and official creditors.
- Increased contingency financing, such as Special Drawing Rights (SDRs) for vulnerable nations.
- Reviving Official Development Assistance (ODA) with a focus on grants over loans.
- Greater participation of developing countries in global financial decision-making.
- Prioritizing climate financing to support sustainable development and environmental resilience.
These steps aim to restore fiscal stability, protect social investments, and prevent future debt crises.
