The world is experiencing another debt crisis. More than three billion people live in countries that spend more on interest payments than on education or health. In 2024, external debt service payments reached an all-time high for countries in the global south, with 45 nations dedicating over 15 per cent of government revenues to debt servicing. This crisis has also reached several European countries, including Ukraine, the Republic of Moldova, and Uzbekistan, which have reached critical debt levels in the last three years.

At the heart of the problem is the absence of a fair and equitable debt resolution mechanism, which leaves countries with limited options to avoid default. The current international financial architecture provides no tools to prevent accumulation of unsustainable and illegitimate debts. It also lacks rules-based mandatory frameworks to promote responsible lending and borrowing; debt transparency; and approaches to debt sustainability with human rights and other social, gender, climate, or development considerations at its core.

Currently, when a country faces problems in repaying its debts, there is no formal, organised system or set of rules governing sovereign debt restructurings. The G20 Common Framework for Debt Treatment (CF) was established in November 2020 to provide timely and efficient debt restructurings for lower income countries. However, the CF lacks inclusive global south participation and predictability, and its implementation has not delivered any substantial debt cancellation in the last four years. The CF is limited to a list of 73 countries and so far only four have requested debt treatment under this framework: Chad, Ethiopia, Ghana, and Zambia. Countries in deep debt distress like Suriname or Sri Lanka are excluded from the list of eligible countries. Many countries are therefore left to negotiate with their creditors directly and separately. Furthermore, the CF is not binding to private creditors, it excludes multilateral debts, and debt cancellation is only considered in exceptional cases.

In the current system, debt problems are addressed according to the needs and interests of creditors, namely: the G20, including China, other non-traditional lenders, and the Paris Club; the International Monetary Fund (IMF), the World Bank, and other multilateral creditors; and private creditors, particularly asset management companies that manage most of the bondholder debt. For instance, the G20, bondholders, and International Financial Institutions (IFIs) constitute the majority in the recently formed Global Sovereign Debt Roundtable (GSDR), an initiative established in February 2023 to bring creditor and debtor countries to the same table. Since its inception, the Roundtable has been criticised for this unequal weighting as well as its lack of inclusive participation from borrowing countries.

Where there are no repayment problems, other elements of the life cycle of sovereign debt could still benefit from a binding statutory framework of rules and principles to prevent debt crises. The United Nations Conference on Trade and Development (UNCTAD) did release responsible lending and borrowing principles, but they are voluntary. A new debt architecture should promote responsible lending and borrowing rules that are binding for all official and private creditors and all borrowers. Furthermore, debt data and debt management suffer from a lack of transparency, so the world would also benefit from a global registry for debt transparency.

Ultimately, reforming the international financial architecture would be in the interests of the broader global community, paving the way for human rights-centred, sustainable, long-term development.