“The Romans had a god named Janus – deity of thresholds, beginnings, and transitions, famously depicted with two faces, one looking back, the other forward. Debt management demands that same duality. Like that ancient god, we too must look in two directions at once: backward at the debts we’ve accumulated, and forward to the futures they will shape,” said UN Trade and Development (UNCTAD) chief Rebeca Grynspan in her opening remarks at UN organised 14th International Debt Management Conference last week in Geneva. A perfect illustration showcasing that debt management requires countries to balance their past borrowings with the impact they will have on the future.
Several developing nations are currently struggling with a severe debt crisis. UNCTAD Report indicates that in 2023, their external debt reached a record $11.4 trillion—equivalent to 99% of their total export earnings. While most of these countries have not officially defaulted, however, they are falling behind on development, failing to invest in critical areas like healthcare, education, and climate resilience.
The conference, in its key issue on its website says, “…This is now the reality for two-thirds of developing countries. Their public sector debt sustainability deteriorated between 2017 and 2023 as interest payments outpaced government revenues. Cascading global crises – COVID-19, a worsening climate crisis, a cost-of-living crisis and geopolitical tensions – have aggravated developing countries’ challenges and eroded their fiscal space. Over half of the 68 countries eligible for the International Monetary Fund’s Poverty Reduction and Growth Trust now face debt distress – more than double the 2015 level.”
This continuing and growing financial crisis affects billions which is worrisome. The UNCTAD report suggests that an estimated 3.3 billion people live in nations that spend more on repaying debts than on vital public services like healthcare and education. That reminds us of the old tradition of loan lenders who would lend money to the needy at high interest rates, and the needy would hardly be able to pay the interest and hence would lose the guaranteed mortgage. Presently, the middle-income countries, which form the backbone of global trade, are among the worst affected. The current global situation and rising interest payments are diverting funds from crucial infrastructure development projects, making economic progress even harder to achieve.
Rising Global Trade but Growing Uncertainty
Even though it is observed that the debt situation is alarming, global trade has reached a record $33 trillion in 2024. Marking a 3.7% increase from the previous year. The latest UNCTAD Global Trade Updates suggest that developing nations are key drivers of this growth. India and China outperformed global trade averages, while economies such as Russia, South Africa, and Brazil saw only modest improvements. However, beneath these impressive figures, under the surface, lies an invisible worry. Several developing countries are now spending 16% of their export earnings on debt repayments. It is like three times the percentage allowed for Germany’s post-World War II recovery. Furthermore, trade growth slowed significantly in the latter half of 2024 due to increasing global conflicts and economic uncertainty. Experts warn that 2025 could bring more financial instability as global tensions and uncertainty continue.
We have an example of Sri Lanka, how unsustainable debt can cripple a nation. In recent years, the country borrowed heavily for infrastructure projects, including highways, ports, and power plants. However, many of these projects did not generate sufficient revenue to cover their costs. it affected their foreign money reserves. The debt grew. The Sri Lankan ruling government was unable to pay for essential imports like fuel and medicine. The result was that in the year 2022, Sri Lanka massively defaulted on its foreign debt, leading to severe economic hardships. The outcome was skyrocketing Inflation to the extent that necessities became scarce. This led to mass protests and civil disobedience, forcing the government to seek financial aid from the International Monetary Fund (IMF). India also came to the rescue of Sri Lanka.
Another example in our neighbourhood is Pakistan, which is presently facing a similar crisis, with external debt exceeding $130 billion. Pakistan has been caught in a cycle of borrowing from international lenders to repay previous debts with high-interest payments. It has strained public finances and equally reduced funds for development projects. To top it all in 2023, Pakistan faced a natural disaster, devastating floods, that further worsened its economic situation. Today, despite international aid, the government is struggling to allocate funds for rebuilding efforts due to increased debt obligations. The IMF and other financial institutions have called for economic reforms to stabilise Pakistan’s economy, but the path to recovery remains completely uncertain as homegrown violence and terrorism is making the country more complicated to recover from the debt. Even friends of Pakistan are slowly but surely withdrawing from their support.
Recognising the severity of the debt crisis, international organisations like the IMF and UNCTAD are pushing for reforms. UNCTAD’s latest Debt Management and Financial Analysis System (DMFAS 7) in its renewed efforts are aggressively aims to enhance transparency and governance in public debt management. The aim or objective is that these reforms should help developing nations to manage their resources more efficiently and negotiate better terms with creditors.
One innovative solution gaining attraction is debt-for-climate investment swaps. Under these programs, creditor nations cancel a portion of a country’s debt in exchange for commitments to fund environmental or social projects. For example, Ecuador has successfully used this approach to support conservation efforts in the Galápagos Islands. Expanding such initiatives could help other debt-ridden nations invest in sustainable development while easing their financial burdens.
African nations also face debt-related challenges. Kenya, for example, has taken an innovative approach by heavily investing in renewable energy projects. This helps the country reduce its dependence on fossil fuel imports, thus improving economic stability in the long run. However, managing the current debt remains a key concern.
India has managed to maintain steady economic growth despite global challenges. India is set to dominate the global economic landscape, maintaining its status as the fastest-growing large economy for the next two fiscal years. The January 2025 edition of the World Bank’s Global Economic Prospects (GEP) report projects India’s economy to grow at a steady rate of 6.7% in both FY26 and FY27. The country has leveraged its expanding digital services and manufacturing sectors to sustain positive trade momentum. The latest annual consultation report from the IMF has projected a balanced outlook for India’s economic growth. The report also appreciates and acknowledges India’s effective inflation management. However, the same report also expressed concerns about the long-term sustainability of India’s debts. Rising government debt remains a concern. Large-scale borrowing for infrastructure projects, while essential for development, has increased financial pressure. The good thing is that the country is taking a calculated risk, well researched so that it can maintain long-term stability. Still, several economists advise that India must carefully balance growth with responsible debt management, as we all understand that the global debt crisis poses a major threat to sustainable development, particularly in developing countries.
Globally, as debt burdens rise, different ruling governments must make difficult choices beyond political interests regarding where to allocate resources. Otherwise, without urgent reforms, billions of people may be trapped in a cycle of economic stagnation and underdevelopment. However, solutions do exist as suggested by the International Debt Management Conference which are: Responsible fiscal policies, investment in green infrastructure, and international collaboration that can help nations navigate foreseen challenges. So, all those countries suffering need to implement smart debt management strategies and innovative financial solutions that will help the world ensure economic growth and development without sacrificing financial stability. The future of millions depends on the decisions made today.