Half of the world sinking into a debt disaster – United Nations  

Jul 13, 2023 News

---

…says countries spend more on debt interest payments than on health, education

Kaieteur News – United Nations Secretary General, António Guterres on Wednesday warned that half the world is sinking into a development disaster, fuelled by a crushing debt crisis, noting that some 3.3 billion people – almost half of humanity live in countries that spend more on debt interest payments than on education or health.

He made the comments as the UN launched a report titled: ‘A WORLD OF DEBT’. The document was prepared by the UN Global Crisis Response Group and the five UN Regional Commissions: ECA, ECE, ECLAC, ESCAP and ESCWA. According to the report, public debt around the world has been on the rise over the last decades. Cascading crises in recent years triggered a sharp acceleration of this trend. As a result, global public debt has increased more than fivefold since the year 2000, clearly outpacing global GDP, which tripled over the same time. In 2022, global public debt – comprising general government domestic and external debt– reached a record USD 92 trillion. Developing countries owe almost 30% of the total, of which roughly 70% is attributable to China, India and Brazil.

The UN reports comes against concerns locally that the Guyana Government is on a borrowing spree since it has discovered oil. Guyana’s Finance Minister, Dr. Ashni Singh, during his 2023 budget speech had disclosed that the country’s total public debt stood at US$3.6 billion, an increase by 16.9 percent from last year. This publication had pointed out that almost all of its recently announced public infrastructural projects government has been borrowing to finance them despite earning over US$1 billion in the oil account for last year. Despite this Dr. Singh told investors earlier this year that Guyana’s Gross Domestic Product (GDP) has tripled in the last three years, placing the country in a greater position to take more loans. Dr. Singh said Guyana has been able to prudently manage and reduce the debt to GDP ratio over the past 30 years. He explained, “Those of you who have been following Guyana for long enough, would know that there was a period just about maybe 30 years ago when Guyana’s public debt to GDP exceeded six times the size of the economy. In 1991/ 1992 the public debt to GDP ratio exceeded 600%…we have been able over the years to bring public debt down and today Guyana’s public debt to GDP ratio stands at 24.6 percent.”

With the country’s public debt steadily increasing and at least $79 billion more in loans being added this year, President Irfaan Ali recently assured that Guyana has the lowest debt to Gross Domestic Product (GDP) ratio in the Caribbean. The Head of State gave this assurance during an address at the La Primavera Banquet Hall in Ontario, Canada. He was focused on the country’s development and the investment opportunities that await the diaspora in Canada when he gave specifics regarding the state of the economy. According to the President, even though there is chatter that Guyana is borrowing a lot, the country has made it clear that it would only borrow from institutions that are offering loans at a fixed interest rate of no more than 3.5 percent. “Some people say we are borrowing a lot…although we are a country that is the fastest growing economy in the world, we have set ourselves an internal target in Guyana that we are only going to borrow fixed rates, less than 3.5 percent,” he explained.

Unsustainable debts

Meanwhile, delivering remarks at the launch of the report, UN Secretary General noted that because most of these unsustainable debts are concentrated in poor countries, they are not judged to pose a systemic risk to the global financial system.  According to the UN markets may seem not be suffering – yet, but people are. “Some of the poorest countries in the world are being forced into a choice between servicing their debt, or serving their people.  They have virtually no fiscal space for essential investments in the Sustainable Development Goals or the transition to renewable energy.  Levels of public debt are staggering and surging,” the UN boss said.

He noted that in 2022, global public debt reached a record US$92 trillion, with developing countries shouldering “a disproportionate amount.” Additionally, the UN said a growing share is held by private creditors who charge sky-high interest rates to many developing countries. “On average, African countries pay four times more for borrowing than the United States and eight times more than the wealthiest European countries. The International Monetary Fund says 36 countries are on so-called “debt row” – either in, or at high risk of, debt distress. Another sixteen are paying unsustainable interest rates to private creditors.” The UN SG said.

According to the UN a total of 52 countries – almost 40 percent of the developing world are in serious debt trouble. “It is one result of the inequality built into our outdated global financial system, which reflects the colonial power dynamics of the era when it was created. The system has not fulfilled its mandate as a safety net to help all countries manage today’s cascade of unforeseen shocks – the pandemic; the devastating impact of the climate crisis; and the Russian invasion of Ukraine.”

The UN Secretary General said debt is an important financial tool that can drive development and enable governments to protect and invest in their people. But when countries are forced to borrow for their economic survival, debt becomes a trap that simply generates more debt.  “Today’s report is our most detailed picture yet of this unfolding debt crisis, with a wealth of comparisons and context.  It also sets out our roadmap to global financial stability – a roadmap already put forward in our Policy Briefs on reforms of the Global Financial Architecture and the SDG Stimulus.  Deep reforms to the global financial system will not happen overnight. But there are many steps we can take right now. “

“Our proposals include an effective debt workout mechanism that supports payment suspensions, longer lending terms, and lower rates, including for vulnerable middle income countries. Governments can agree right now to scale up development and climate finance by increasing the capital base and changing the business model of Multilateral Development Banks.  They can enable much stronger coordination between the banks, to transform their approach to risk without losing their triple A credit rating, so that they can massively leverage private finance at affordable cost to developing countries.

The Bridgetown Agenda led by Prime Minister Mia Mottley of Barbados and the recent summit hosted by President Macron of France generated other important proposals. The upcoming G20 Summit is an opportunity to take these ideas forward.  Action will not be easy.  But it is essential, and urgent.  Today’s report shows that time is up for 3.3 billion people,” the UN Secretary General stated.

Devoting more money to pay debts

The report said in Latin America and the Caribbean, developing countries are devoting more money to interest payments rather than to investment. The report noted that across the world, rising debt burdens are keeping countries from investing in sustainable development. “An increasing number of countries find themselves trapped in a situation where both their development and their ability to manage debt is compromised. Currently at least 19 developing countries are spending more on interest than on education and 45 are spending more on interest than on health. In total, 48 countries are home to 3.3 billion people, whose lives are directly affected by underinvestment in education or health due to large interest payment burdens,” the report added.

---

• António Guterres, education, Health, Secretary-General, United Nations

---