
The event was part of the Gwangju Democracy Forum (GDF), an annual event in Gwangju, South to keep the spirit of the May 18 Gwangju uprising alive. Forty-four years ago, a popular uprising led largely by students protesting the military dictatorship of Chun Doo-hwan, was brutally suppressed, resulting in thousands arrested, injured and/or killed. The GDF invites us all to participate in imagining a democratic and rights-based future, in the same way that the martyrs and heroes of the May 18 uprising imagined and ardently aspired for such a future at the cost of their very lives.
Dangerous times for the Global South
More than three years after the UN declared an end to the COVID-19 pandemic, we remain in a context of increasing uncertainty and precariousness. We continue to feel spillovers and cascading effects on our societies and economies, and our very households and daily lives. The heaviest impacts are suffered by the poorest and low-income groups in the Global South that were hit by the pandemic in the midst of decades-long, unresolved economic and financial crises, and in a context of intensifying climate change. There has in fact been a “reversal of development” observed, where one of three of the poorest developing countries was found to be more impoverished than it was just before the pandemic.
Unsustainable debt immediately stood out as a major red flag endangering peoples’ survival. There was common concern in the global community that the accumulation of public debt in the last couple of decades preceding the pandemic would be a significant factor in recovery, and that borrowing countries would no doubt need more financial resources to survive and hurdle the multiple crises.
This holds true today. Little has changed. If anything, with the swift accumulation of debt on previously high levels of borrowings, we are now faced with a growing mountain of public debt and at higher interest rates, thus raising the cost of debt servicing. High debt levels further diminishes the likelihood of the Sustainable Development Goals (SDGS) being met substantively by 2030. According to the Organization of Economic Cooperation and Development (OECD), the financing gap to reach the SDGs in developing countries increased by 56% during the COVID-19 years, totalling USD 3.9 trillion in 2020. Unsurprisingly, inequalities within and between countries have also deepened, and are projected to further worsen, especially for those called “low-skilled”, the youth and women.
Record-breaking debt
More than 60 countries are today in or approaching debt distress, from 46 in January 2021. Global sovereign debt as reported by the International Finance Institute now stands at an unprecedented $313 trillion, an increase of $15 trillion in 2023. World Bank data show that developing countries spent a record-breaking $443.5 billion to service their external public and publicly guaranteed debt in 2022 alone. Debt Service Watch unequivocally calls the current debt situation as “the worst debt crisis the Global South has faced since global records have begun”.
Debt service has also unsurprisingly ballooned. Data from Debt Service Watch reports that this already averages almost 30% in all countries. As shown by how much debt service amounts to, the heaviest burdens fall on lower income countries (39% of spending), lower middle-income countries (33%), least developed countries (33%) and landlocked countries.
Several of these countries are in the Asian region. Sri Lanka defaulted in 2022, following defaults of Zambia, Chad and Ghana. Not far behind is Pakistan, still struggling to address the enduring impacts of catastrophic floods in 2022 while saddled with a $127-billion external debt for which it coughed up $16.6 billion in debt service that year.
Flawed and futile solutions
The Group of 20, at the urging of the International Monetary Fund and the World Bank, set up in 2020 the Debt Service Suspension Initiative (DSSI). Aiming only to provide immediate liquidity interventions for a year and a half, covering only bilateral loans and limited to Low-Income countries (LICs) the DSSI failed to deliver the relief needed by developing countries to be able to shift their financial resources from debt service payments to essential services. After the DSSI closed in December 2021, participating countries had to resume paying debt service, notwithstanding worsening socio-economic conditions and fiscal position. Only 43 countries of the 73 LICs eligible for DSSI applied, resulting in the suspension of only $13 billion in debt service or a mere quarter of the amounts projected by the G20.
Another scheme of the G20 is the Common Framework for debt treatments beyond DSSI, launched by the G20 in late 2020 with the IMF as lead coordinator and technical advisor. It was meant to accelerate debt restructuring processes, but again, this has failed in enforcing the primary goal of comparability of treatment, i.e., that all creditors including private lenders will participate and agree to losses on the face value of their loans. Like the DSSI, its coverage is limited to bilateral loans and LICs, and does not subject private lenders to the same requirements as official creditors. Like the DSSI, it also excludes Middle-income countries (MICs) from even minimal debt relief despite situations approaching or similar to contexts in LICs.
Sourcing public debts from private or commercial sources has become a significant trend in Asia and other Global South regions and is a key factor driving the higher interest rates that are charged to “high risk” developing countries. From only 47% in 2010, the share of privately sourced debts in the composition of external public debt stood at 62% in 2021; in Asia and Oceania, this rose from 39% to 63% during the same period. Private lenders continue to resist attempts towards requiring them to participate in debt relief, on the same terms as lending governments. Without this requirement in the G20 schemes, the influx of new debts during and after the COVID years only means that public money has become available to bailout private lenders who are often paid first and lose less than bilateral lenders.
Costly trade-offs, human rights and inequality
As debts accumulate and interest rates rise, so do debt service payments. To keep lending windows open, debt-trapped countries are compelled to keep up with debt repayment obligations even if this results in further narrowing fiscal space, and causes human rights and SDG commitments to be rolled back.
In 2020, UNCTAD reported that developing countries were allocating over 1.5% of GDP and 6.9% of revenues to debt service. Interest payments alone also grew faster than public spending for education and health. More recently for Asia, it has been reported that a number of countries already count among the group of countries with debt service payments eating up more than 30% of revenues. Against health budgets of Asian countries, for example, as much as three times goes to debt service.
Debt Service Ratios, selected Asian countries.
Country | Total Debt Service | ||
As % of revenue | As % of expenditure | As % of GDP | |
Pakistan | 49.03 | 34.03 | 8.32 |
Bangladesh | 48.75 | 28.16 | 4.28 |
Maldives | 37.82 | 32.18 | 10.05 |
Sri Lanka | 119.86 | 53.49 | 14.12 |
Lao PDR | 122.24 | 89.82 | 16.60 |
Indonesia | 36.16 | 29.97 | 4.60 |
Myanmar | 62.81 | 46.25 | 11.58 |
Philippines | 32.33 | 27.82 | 6.52 |
Pressure on borrowing countries is also driven by loan conditionalities which often take the form of fiscal consolidation or so-called austerity measures that require borrowers to cut down on public expenditures, including selling off public service provision to the private sector, freezing the wages of public sector employees, increasing value-added regressive taxes and cutting back on social spending, among others. Low-income households and women who most need publicly subsidized essential services end up bearing the brunt of austerity policies, often by increasing both paid and unpaid labor at the expense of their health and well-being.
It is important to remember that State parties to core human rights treaties are legally obliged to create an enabling environment for the progressive realization of economic, social and cultural rights, including through international assistance and cooperation. But there is a grave disconnect with their application in an international financial architecture that is controlled and dominated by the advanced economies, the world’s wealthy elites and leading international financial institutions sometimes described as human rights-free zones.
As pointed out by Attiya Waris, the UN Independent Expert on foreign debt and human rights: “Debt is a human rights issue….When countries are burdened by debt, they don’t have the money to ensure access to their human rights, including services such as water and food or, during the pandemic, vaccines, hospitals and medical personnel. Human rights require money”.
Global civil society and social movements – advancing debt justice calls and demands
International cooperation towards changing lending and borrowing practices and policies should start with recognizing the growing global call for the cancellation of unsustainable and illegitimate debts.
Secondly, the serious democratic deficits in decision-making over sovereign debt matters must be addressed. Currently, decisions are made in the narrow spaces of the G7/G20, the IMF and the World Bank, the Paris Club, the OECD and other formations dominated by the advanced economies and wealthy countries. There is no multilateral space, mechanism or process to democratically address sovereign debt issues, where Global South countries have a meaningful voice and a say over public debt, including the recognition of illegitimate debts claimed from the South — — questionable, fraudulent, environmentally harmful, violative of human rights – that must be unconditionally cancelled. We thus continue to call for the establishment of a fair, transparent, binding and multilateral framework for debt crisis resolution (under the auspices of the UN and not in lender-dominated arenas) that addresses unsustainable and illegitimate debt.
It is high time that the dominant “debt sustainability” framework of the IFIs are reviewed in a democratic manner and revamped to make them truly fit-for-purpose and responsive to current realities on the ground. Debt continues to be viewed superficially as a problem of liquidity or capacity to pay when it is clearly a systemic problem requiring systemic solutions. Human rights, climate vulnerabilities and risks, multi-dimensional inequalities and other indices must be brought to bear in assessing countries’ debt and fiscal positions.
Southern governments themselves also must be held to account by their constituents for fraudulent acts (corruption, bribery) in contracting loans and other borrowing practices that do not meet even minimum democratic standards such as ensuring public access to information and ensuring the informed participation especially of communities affected by debt-funded projects. Thorough-going national and global review and changes in lending, borrowing and payment policies and practices must be supported to precent the re-accumulation of unsustainable and illegitimate debt, strengthening democratic institutions and processes, and upholding human rights and peoples’ self-determination. Citizens should also push for the exercise of the sovereign right to unilaterally repudiate debts that caused harm, including suspending and/or stopping payment where people’s survival, well-being and human rights are at stake.
More strategically, Global South movements vigorously reiterate the demand for reparations for the historical and continuing damage to our societies and economies by unsustainable and illegitimate debts and the enslaving chains of debt service and loan conditionalities. To see debt from its colonial origins to the present is to realize that this the debts claimed from the Global South have been paid many times over not only in terms of debt service repayments, but also devastatingly, in terms of human labor, in the plunder of environmental resources, or the net transfer of resources from the South to the North overall.
Crises are mutually reinforcing and tend to become more acute over time, as we saw during COVID-19 and as we’re seeing in these times of worsening climate change. Without a just resolution to the debt crisis and the deep deprivations and inequalities that it creates within and between countries, other crises of our times will also be exacerbated. There is a long way to go to realize the system change that will usher in the alignment of economies and global finance with sustainable development, justice and human rights, and accordingly, emplace a financial architecture that truly serves people and the planet. But it is a challenge we cannot shirk from, if we are to build equitable, democratic societies and a just and sustainable world.
But global civil society and social movements across the world are rising to the challenge of exposing and resisting the impunity of corporations and private lenders as well as the false solutions to the debt crisis pushed by the Global North, international financial institutions, and other lenders. The growing magnitude and widening scale of multiple crises require stronger forms of international cooperation — bound by global solidarity that comprehensively seeks profound changes in the international financial architecture (of which one element is the debt problem), and the transformation of steeply unequal systems, structures and relations of power underpinning the South’s indebtedness, increasing vulnerabilities to shocks and perpetual crisis of development.