Nations spending more on interest payment than education & health

With hardly six years left for the Sustainable Development Goals (SDGs) to be met by 2030, the world has hit a wall: countries are drowning in unprecedented levels of debts. Serving loans is a key expenditure for many countries that keeps them away from development funding, like on health and education.   

According to the Institute of International Finance, global debt (including borrowings of households, businesses and governments) has reached $315 trillion in 2024. This is three times the global gross domestic product (GDP). 

World Economic Forum President Borge Brende qualified this burden: “There are about 8.1 billion of us living in the world today. If we were to divide that debt up by person, each of us would owe about $39,000.”

While debt, or borrowing, is an established way to fund personal, institutional and national expenditures, it has reached an unmanageable level where borrowers divest much of the revenues to just serve debt, primarily in terms of interests. 

Of the total global debt, household debt stands at US$59.1 trillion; business debt at US$164.5 trillion; and public debt (governments’ borrowing) at US$91.4 trillion. Many compare this level of debt to that experienced during the Napoleonic Wars some two centuries ago.

The mounting public debt is concerning, warranting dire warning from various international agencies. This is because public spending on development sectors is being restrained by this. 

On June 5, the United Nations (UN) said in a new assessment report titled A world of debt 2024: A growing burden to global prosperity that the level of public debt has not just reached a historic level but also threatens countries’ development spending, particularly among developing and poor countries.

Global public debt (both domestic and external borrowing by governments) reported a steep hike: US$97 trillion in 2023, an increase of US$5.6 trillion over 2022. Developing countries share 30 per cent of the total global debt. But the debt growth rate of developing countries is twice that of developed countries.

Debt becomes a risk when the respective country doesn’t have the capacity to repay. In such a situation, the country concerned has to divert funds to just serve it while slashing budgets for development programmes. 

Starkly, countries that have the least capacity to repay are also the ones serving loans the most. The latest UN assessment says that in 2023, developing countries spent US$847 billion in interest payment. That is a 21 per cent increase over 2021. For these countries, the interest rate is also higher, up to four times that of the US.

This shows up in the countries’ accounts. For instance, the number of African countries with debt-to-GDP ratio above 60 per cent has increased from 6 to 27 during 2013-2023. Some 27 African nations fork out 10 per cent of government funds just for debt interest payment.

Its impact on development spending is glaring. The UN assessment says that some 3.3 billion people currently reside in countries where debt interest payment overtakes spending on either education or health. In Africa, the per capita spending on interest is US$70, which is higher than US$60 per capita for education and US$39 for health.

The growing public debt for developing countries could be a direct fall out of the changing profile of development aid. First, aid has fallen in the last two years. Second, concessional loans are replacing aid thus also adding to developing countries’ debt. In 2012, loans’ share in aid for developing countries was 28 per cent, which has reached 34 per cent in 2022. Third, the support to lessen debt among developing countries in terms of relief and other actions has also trickled: from US$4.1 billion in 2012 to US$300 million in 2022.

It is certain that global debt has become a trap where developing countries end up serving only it. Of all reasons for not meeting SDGs, high debt is emerging as the most prominent one. But it can be fixed if the world negotiates a debt waiver deal as is being discussed.