The International Monetary Fund (IMF) and the World Bank (WB) are holding their annual Spring Meeting this April amidst the worsening debt crisis. An estimated 3.3 billion people are living in countries that spend more on interest payments than education or health.
For eight decades, the IMF-WB have been instrumental in shaping an international financial architecture that systematically extracts the wealth of the Global South, and perpetuates a cycle of indebtedness, poverty, and environmental degradation. From previous years and more recently during the COVID pandemic, the failure of these institutions have become increasingly evident. More and more countries are sinking in debt, including “model” governments, such as Sri Lanka and Pakistan, which have faithfully adhered to structural adjustment programs and loan conditionalities imposed on them through the years.
The IMF-WB together with other lenders have rendered the Global South even more vulnerable to global economic and financial crisis and more at risk from the devastating impacts of the climate emergency.

Public debts at all-time high

The UN noted the increasing debt as “a growing burden to global prosperity.” Total public debt, domestic and external combined, reached $92 trillion in 2022, increasing five times from $17 trillion in 2000. Governments in the Global South account for almost one-third of the total, and are accumulating debt much faster than their richer counterparts. The number of countries with public debt levels exceeding 60% of GDP continues to increase, from 22 in 2011 to 59 in 2022.
External long-term public debts of low- and middle-income countries (LMICs) rose steadily over the past decade and remains very high. In 2022, it reached $3.3 trillion. This include debts directly contracted by governments and debt by the private sector debts but were guaranteed by the government.

Even before the pandemic, all types of creditors — private, multilateral and bilateral — had already been increasing their lending to the South. Most marked is the increased reliance of Southern governments on private creditors. Middle-income countries on the other hand, tend to incur more loans from private creditors, primarily in the form of sovereign bonds. For Low-income countries (LICs), external loans are still heavily sourced from multilateral and bilateral lenders (collectively “official creditors” or other governments).

It is more expensive for poorer countries to borrow from private creditors than from official lenders, because developing countries are seen as riskier borrowers (or likely unable to meet debt service obligations). In 2022, lower middle-income countries’ (LMICs) debt service amounted to over $400 billion, of which and two-thirds of that went to private creditors.

The share of concessional loans offered by multilateral and bilateral creditors to LMICs has been declining. In 2012, concessional loans already made up less than 40% of public debts from official creditors, and this has steadily declines to only 27% as of 2022. Concessional loans are considered less burdensome because of lower interest rates, longer maturity periods (or payment period) and other “friendlier” terms. However, they are still loans that add to the debt stock of already debt-strapped countries.
The Global South is trapped in a perpetual state of indebtedness. Total public debts keep rising despite ever increasing principal amortization (or “repayments”) on public debts. This is because new loans are acquired every year, the amounts of which are more than the principal amortizations being paid. In 2022, $301 billion in principal amortization but at the same time borrowed over $337 new loans.

Burden of debt

The policies and lending practices of the IMF and the WB consistently prioritize the interests of creditors and profit-driven private and commercial entities, while stripping countries of adequate sources of financing for public investments in social services and in sustainable development.

A report across 139 WB-borrowing countries by Debt Service Watch shows that on average, debt service eats up 35% of budget revenue. This rises even more significantly among LICs and LMICs to 57.5% and 44.5%, respectively. Countries in both income groups also spend more on debt service, by 65% more for LICs and 14% more for LMICs, than the combined budgetary spending for education, health, and social protection.

Debt service takes up a significant chunk of public finance. In six select Asian countries in South and Southeast Asia, debt service accounts for around one-fifth (20%) of government expenditure

Moreover, loans conditionalities such as austerity measures, privatization of public assets, and deregulation of markets have resulted in deepening poverty and inequalities, as well as increased the pressure environmental extraction and degradation. A chart from the End Austerity report (see figure at right) shows that austerity measures are more prevalent in the Global South. This is certainly driven in part by loan conditionalities imposed by creditors and/or the sheer lack of financial resources left to the government after debt service payment.

The failure of these institutions to provide effective pathways out of the perpetual debt crisis has been one of the major impediments to fulfilling the 2030 deadline of the Sustainable Development Agenda. UN ESCAP pointed out that based on “its [Asia’s] current trajectory, the region will not meet any of the 17 SDGs by the agreed deadline. Current estimates show these will not be reached before 2062, at least 32 years behind schedule.” It has further pointed out that “climate action (Goal 13) as an immediate priority remains imperative, notably due to its ongoing regression.”

Illegitimate debts: harmful to people, communities and the plant

Large-scale infrastructure projects financed by WB have led to forced displacement, loss of livelihoods, and destruction of ecosystems, exacerbating social inequalities and perpetuating cycles of poverty and vulnerability. Moreso, WB lending of projects that were harmful to people and planet have essentially signaled other lenders to do the same.

Briefer On Public Debt

Cancel the Debt! Cancel illegitimate debts arising from fossil fuel projects!
Immediate and unconditional debt cancellation for the South!
Stop fossil fuel lending!
No to loans for climate action!