Global public debt alarm at record high

SGGP 07/14/2023 06:54

Global public debt is set to rise to a record $92 trillion by 2022 as governments borrow more to cope with crises like the Covid-19 pandemic, according to the United Nations. The burden is particularly high for developing countries.

Public debt clock in Manhattan, New York City, USA. Photo: TL

Public debt growing faster than GDP

According to a UN report, domestic and foreign public debt worldwide has increased more than five times, while gross domestic product (GDP) has increased only three times since 2002. The report was released ahead of the G20 Finance Ministers and Central Bank Governors Meeting from July 14 to 18.

Developing countries' debt accounts for 30% of global public debt. Of this, 70% is owed by China, India and Brazil. 59 developing countries have a public debt/GDP ratio of over 60%, a high level of public debt.

The report notes that public debt has become a significant burden for developing countries due to lack of access to finance, rising interest rates, currency depreciation and sluggish economic growth. Furthermore, the international financial architecture makes access to finance for developing countries both inadequate and expensive, citing net public debt interest payments exceeding 10% of revenue for the world’s 50 emerging economies.

In Africa, 3.3 billion people live in countries that spend more on public debt than they do oneducation or health. The report says countries are facing a difficult choice between paying their debts or serving their people.

Solutions

The UN recommends a number of urgent remedies, including an “effective debt service mechanism” that would provide payment suspensions, longer loan terms and lower interest rates, including for vulnerable middle-income countries. The report also calls for scaling up affordable long-term finance by changing the way multilateral development banks operate, redesigning them to support sustainable development and leveraging private resources.

According to estimates by the International Monetary Fund (IMF), 70% of total debt in emerging countries and 85% of debt in low-income countries is in foreign currency. Since governments in developing countries spend in local currency and borrow in foreign currency, this structure exposes public budgets to large depreciation of local currency against foreign currency.

To date, at least 88 countries have lost their currencies against the US dollar. As a result, the United Nations Conference on Trade and Development (UNCTAD) has been pushing for multilateral solutions in the areas of capacity building, debt transparency, and debt crisis resolution and relief.

UNCTAD is supporting countries through the Debt Management and Financial Analysis Programme (DMFAS), one of the organization's most successful technical assistance initiatives.

DMFAS provides countries with debt management solutions and generates reliable data for policy making. Since its inception more than four decades ago, DMFAS has supported 116 organizations, primarily ministries of finance and central banks, in 75 countries. Today, 61 countries, nearly three-quarters of which are low- or lower-middle-income, use DMFAS software for their day-to-day public debt management.

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