Debt Report 2023: Higher Debt in the Global South

Interest payments are increasingly eating up the budgets of poor countries. According to the 2023 debt report, Ghana, Guinea-Bissau and Malawi are particularly affected.

Malawi is one of the countries with the highest debt Photo: Thoko Chikondi/ap

BERLIN taz | Global debt remains at a critical level – and is increasingly burdening the economy and society, especially in the Global South. According to the Debt Report 2023, which the NGOs Misereor and Erlassjahr.de presented on Thursday, the debt situation in 136 of 152 countries surveyed is critical, in 40 of them even very critical – that’s a tripling compared to the time before the outbreak of the corona pandemic.

“The pandemic, the climate and food crisis and the war in Ukraine are fueling the debt spiral in the Global South,” said Klaus Schilder, an expert in development finance at Misereor, at the presentation of the report in Berlin.

The situation has eased slightly in Europe and Central Asia, for example. According to the report, the debts of Ghana, Guinea-Bissau, Malawi, Oman and Rwanda have worsened in particular. The global south is particularly affected. In the “Sub-Saharan Africa” region, for example, the situation has deteriorated in 78 percent of the countries.

However, the analyzes are based on data up to December 2021. The effects of the Russian war of aggression on Ukraine are not yet included. It is currently becoming apparent that Ukraine is becoming increasingly indebted. Alongside the slump in the economy, the country has taken on $41.7 billion in new loans through January 2023.

Rate hike hits poor countries

The war also has global repercussions: the Russian attack on Ukraine has caused food and energy prices to rise around the world – fueling inflation in many places. The interest rates raised by the central banks around the world as a result have further increased the debt of numerous developing countries.

On the one hand, their currencies and government bonds are depreciating in relation to the US dollar, making it difficult for countries to get new capital to repay loans. At the same time, they have to pay high interest rates – which exacerbates the debt.

“Critically indebted countries spend more than 20 percent of their income on interest payments,” says Kristina Rehbein, political coordinator of the German debt relief alliance erlassjahr.de. In Pakistan it is even almost 40 percent.

Estimated debt service rates for low- and middle-income countries are at their highest levels since the late 1990s, according to the report. “The question of how to get out of the debt spiral is therefore more urgent than ever in 2023,” says Rehbein.

In order to reduce debt, many countries are making cuts where investments are actually needed most, such as in health or education. This is also due to the austerity course set by creditors such as the International Monetary Fund (IMF). The fact that many critically indebted countries, despite their desolate situation, shy away from tackling debt restructuring at an early stage – also for fear of negative reactions from creditors, says Misereor expert Schilder – has an aggravating effect on the crisis.

However, talks on restructuring debt relief at multilateral level have so far failed, and there are also deadlocks on debt restructuring procedures. A large number of creditors are often involved: development banks, private and bilateral creditors. The NGOs expect Germany to be more committed to debt relief and debt restructuring procedures in the IMF and World Bank and, for example, to make private creditors from Germany more responsible.