The COVID-19 pandemic, rising US interest rates and climate disasters have added up to create a global debt crisis that is putting countries at risk of financial collapse. Almost two-thirds of developing countries now face debt-to-GDP ratios above 60%, with many at risk of defaulting and unable to service their existing debt. The huge payments required to repay external debt rob poor countries of resources they could use for essential services like health centers and schools.
This is why PIH campaigns for debt relief, a long-held priority of the late PIH Co-Founder Dr Paul Farmer. For the 78 poor countries eligible to borrow from the World Bank, debt service eats up more than half their budgets and prevents them from investing in vital infrastructure, social services and climate change efforts.
In an era of historically low interest rates, too many countries borrowed recklessly and now face a vicious cycle. The cost of servicing this debt is so high that they are forced to cut back on investment in education, health and infrastructure — which hampers growth and makes them more vulnerable to future shocks.
As a result, the latest Chief Economists Outlook survey finds that most economists believe public debt is now a serious threat to stable economic prospects. The crisis is particularly dangerous for the 3.3 billion people living in countries where interest payments absorb more than 10% of government revenues. If private creditors refuse to cooperate in a debt restructuring deal, governments may be forced to raise taxes – which could trigger violent protests and slow the recovery of their economies. Taking steps to address this urgent issue will allow countries to create the strong economic foundation they need to attract investment, support inclusive growth and reduce their vulnerability to future shocks.