The Debt burden: a crisis that crushes public spending in LAC

The new debt crisis facing developing countries is the most severe ever recorded and has been building over the past decades, beginning with the global financial crisis of 2008-09, the volatility of commodity prices, and exacerbated by the COVID-19 pandemic, which left many countries with fiscal challenges that had to be addressed through borrowing. This was followed by rising interest rates, exchange rate, and increasing food prices. All of this threatens the achievement of development goals and the availability of resources needed to tackle climate challenges.

Descripción

The issue of debt sustainability and the way the financial system is organised is being raised in various international forums as a call to action for leaders to act on the matter and to avoid further setbacks in the progress made within the framework of the 2030 Agenda.

UNCTAD, for instance, points out that In 2023, a historic record of $97 trillion in global public debt has been reached, although the majority of this debt (70 % of the total) belongs to so-called ‘developed’ countries, it is the developing countries that have seen the most significant increase in their debt in recent years and that must pay more in debt amortization and interest relative to their available resources. According to the United Nations, 3.3 billion people live in countries where more is spent on interest payments than on education or health. Moreover, borrowing costs for developing countries can be up to 12 times higher than for developed nations. In 2022, developing countries paid a total of $365 billion to their external creditors, equivalent to 6.3 % of their export revenues, a figure much higher than what they received in loans that year (UNCTAD, 2024)1

Published on September 10, 2024