The global south debt crisis is no longer a risk, but a very tangible reality. Increasing debt payments are crippling governments’ ability to provide essential public services and tackle the climate crisis. 

Debt service, including both domestic and external debt payments, is absorbing an average 38 per cent of budget revenue and 30 per cent of spending across the global south. This rises to 54 per cent of revenue and 40 per cent of spending in Africa, according to a Debt Service Watch report. 

These figures are more than twice the levels faced by low-income countries before the Heavily Indebted Poor Countries initiative (HIPC) and the Multilateral Debt Relief Initiative (MDRI) of the 1990s. They are also slightly higher than those paid by Latin American and Caribbean (LAC) countries before the Brady Plan in the 1980s. Therefore, this is already the worst debt crisis the world has ever seen. 

This article outlines some of the issues debt justice advocates will need to keep an eye on as we move through this challenging year. 

Debt restructurings: too little, too late all over again

As of February 2024, five countries are in different stages of negotiations for a debt restructuring: Suriname, Zambia, Sri Lanka, Ghana and Ethiopia. Suriname reached a deal with Paris Club lenders and bondholders, and has now reached an agreement in principle with China. Zambia’s agreement with bondholders was considered by bilateral creditors as more generous than the deal that had previously been offered to them. The concerns about comparability of treatment have therefore delayed a final deal and negotiations are still ongoing. For Sri Lanka, Ghana and Ethiopia, negotiations are in earlier stages. 

Even if Zambia and Suriname reach a final agreement with all bilateral and private creditors soon, this won’t mean the restructuring process can be considered a success. For instance, in both cases, the deals with bondholders include contingency clauses to increase payments to them if/when the country reaches positive economic results (in the case of Suriname, linked to oil extraction). These types of contingency clauses ensure bigger benefits for the private creditors if the country does well, but they do not include reduced payments if there is a negative shock. This can also be expected in future deals. 

Furthermore, in all of the five countries with ongoing negotiations, the debt deals negotiated or on the table do not provide real debt cancellation (actual write offs of debt stock). In some cases, like Suriname, the impact of arrears (additional charges due to the country not paying during the long negotiation period) eat up most of the savings that the debt rescheduling would have generated. In the case of Zambia, the rescheduling agreement reached so far with bondholders imply very high payments during the first years of the new timeline. In all of the cases, the calculations by DFI indicate that, even if the deals achieve savings aligned with the IMF debt sustainability analyses (DSA): “the countries will still be paying an overall average of 48% of their budget revenue on debt service in the next 3 years, with only Sri Lanka bringing its debt service levels below 30% of revenue”.

For most countries facing too high debt payments, but still not in default, pre-emptive restructuring is discouraged, particularly by market actors including Credit Rating Agencies, but also by the IMF (like in the cases of Pakistan and Kenya), delaying debt resolution for those countries. In conclusion, what is to be expected in debt resolution in 2024, regardless of restructurings being within or outside the G20 Common Framework, is the tenacious persistence of the “too little, too late” syndrome, with creditors’ interests being prioritised well above the rights of people living in indebted countries. 

Common Framework and GSDR: will Brazil’s G21 presidency make a difference?

With the Common Framework stuck and not delivering on the timely and sufficient debt resolution that the G20 promised in 2020, the Global Sovereign Debt Roundtable (GSDR) was created by the IMF, the World Bank and the G20 presidency to overcome the G20 deadlock on debt. It gathers these institutions, six official bilateral creditors (China, France as chair of the Paris Club, Japan, Saudi Arabia, United Kingdom, United States), six debtor countries (Ecuador, Ethiopia, Ghana, Sri Lanka, Suriname, Zambia) and private sector representatives (Institute of International Finance, International Capital Markets Association, BlackRock, Standard Chartered). For the conveners the GSDR has been helpful to find common ground on certain technical fixes and to speed up the start of negotiations with Ghana and Sri Lanka. In the coming months the Roundtable will keep meeting, including in workshops open to other institutions, creditor and borrowing countries, private sector representatives and even civil society organisations. The next two will be on debt and climate, and on comparability of treatment. 

The main question is whether the G21 presidencies of Brazil and South Africa respectively will mean more ambition and inclusiveness in the discussions around debt resolution mechanisms and debt architecture. The role that the African Union plays, as the newest member of the now G21, will also be key. Debt seems to be one of the priorities of the Brazilian presidency, but the geopolitical tensions between China and the Paris Club, and Russia and the Western countries, mean it will prove difficult for the G20 to get out of its deadlock and agree on the improvements to the Common Framework that many are proposing. For civil society, the aim is actually to shift the debt discussions from the non-inclusive and undemocratic space of the G20 to an inclusive, democratic and intergovernmental process at the UN for debt architecture reform.

Negative net flows and multilateral financing

According to the World Bank’s latest calculations, in 2022 total debt net flows (loan disbursements minus principal repayments) to low- and middle-income countries (LMICs) turned negative for the first time since 2015. This continued in 2023, with lower middle-income countries paying $100bn more on their external borrowing than they received in new long-term lending, mostly due to retraction of Chinese and private lending. Since March 2023 no lower income country was able to issue bonds, and with interest rates at very high levels, those who manage to access the markets, like Kenya did recently, are likely to pay double digit rates. 

As bilateral and private lending decreases, multilateral development banks and the IMF are increasing their lending. With no other instrument on the table, multilateral lending is likely to be used to repay private creditors, as well as bilateral creditors such as China. As in the past, we will probably see in the coming years an increase in countries facing problems repaying multilateral debts. This is problematic given that neither the IMF, the World Bank nor other multilateral development banks (MDBs) participate in debt restructurings. Furthermore, as countries increasingly turn to the IMF and MDBs for financial support, they will have to accept the conditionalities imposed by these institutions. Presented as necessary to promote climate action, green conditionalities imposed by the IMF and World Bank in particular still favour market-based solutions, liberalisation and privatisation, coupled with fiscal consolidation. This hampers public investment to advance the SDGs, tackle gender inequalities or take climate action. Private sector-focused green conditionalities, together with austerity, are likely to be on the rise in 2024 IMF and WB programs.

Proposal to overcome the stalemate – “Bridge”

As it becomes impossible to deny that the Common Framework and other debt restructuring processes are not delivering, some are switching their focus towards countries that, while not yet in a debt distress situation, are facing difficulties refinancing their existing debts. The Finance for Development Lab (FDL) proposal - “Bridge to climate action proposal” - distinguishes between those countries facing debt stock problems (debt to GDP ratio above the risks thresholds defined by IMF and World Bank) and those that they classify as illiquid but solvent. According to the FDL, of 104 developing countries in their analysis, 19 are facing debt stock problems, while 25 face liquidity problems. For the latter, they propose a “three-legged deal” including rescheduling payments from bilateral and private creditors, new financing from MDBs and the IMF, and structural reforms to foster green growth from the borrowing countries. This bridge proposal is receiving a lot of attention since it was presented last October. However, it risks merely kicking the can down the road, opening the door for more conditionalities, building up more debt and making the problem bigger and more difficult to resolve in future. Furthermore, it offers key decision-makers a good excuse to not focus on the necessary debt cancellation and the difficult reforms necessary to prevent a lost development decade. Discussions around the liquidity gap versus a more structural perspective on what solvency means from a development perspective will probably peak in 2024.

Debt sustainability: LIC DSA review and more

Another issue that will receive particular attention this year is debt sustainability. The IMF and World Bank will initiate the LIC DSA review in 2024 (a process that can last up to several years). This is an opportunity to discuss how the IFIs and orthodox economics address debt sustainability. Existing approaches that ignore human rights, climate and gender justice aspects, as well as the right to development, are getting in the way of what could be genuinely effective and fair responses to the debt crisis. From civil society and some academics, we will see proposals to open up the discussion beyond merely technical fixes to the LIC DSA methodology, to discuss how to integrate the need to finance SDGs and climate action, as well as human rights and feminist perspectives, in debt sustainability frameworks.

Focus on the debt and climate interconnections

The interlinkages between debt and climate are attracting increasing attention from institutions, including the IMF and World Bank, and governments, particularly in the global south. However, the proposals on the table so far are partial, insufficient or even false solutions, such as debt swaps, climate resilient debt clauses, the development of ESG financing or the promotion of guarantees and credit enhancements by public development institutions for climate and nature-related market financing. We will see a push for some of these proposals by certain private sector actors and some institutions, such as the Task Force on Credit Enhancement for Sustainability-Linked Sovereign Financing presented at COP28, or the Sustainable debt coalition launched by Egypt at COP27. In 2024 we will probably see the first outcomes of the Global Expert Review on Debt, Nature, and Climate convened by Colombia, Kenya and France. The 4th Small Island Developing States (SIDS) conference in May, and the continuous works of the V20 on debt and climate, will also be key to understanding the positions and proposals from some of the most impacted countries. 

Finally, 2024 is a key year to close the negotiations on a new climate finance goal (the negotiation process under UNFCCC known as New Common Quantified Goal - NCQG). Several civil society organisations and social movements are coordinating actions and mobilisations to call for debt cancellation and debt-free climate finance within these processes.

Borrowers clubs

In 2023 we saw increasing steps forward to improve coordination, information sharing and collective action amongst borrowing countries. As the latest UNCTAD “Trade and Development Report” states: “the current global debt architecture is creditor-centric”. Both private and western bilateral creditors have coordinating spaces in order to ensure this status quo remains. As UNCTAD describes it: “coordination enhances the influence of private creditors, cementing their interests, which in turn motivates further coordination”. In contrast, there has been a lack of coordination between global south borrowing countries. Last year we saw many discussions (within CSOs, academia and some institutions such as UNCTAD) and steps taken by borrowing countries to redress this situation and counterbalance this uneven playing field. For instance, the coalition of climate vulnerable countries, V20, have been coordinating positions and pushing for policy changes and debt architecture reform proposals, particularly in the past two years. Also, in November 2023 we saw how the finance ministers of the Member States of the Organisation of Southern Cooperation established the Common Leveraging Union of Borrowers (CLUB), “a union of sovereign debtors that aims to pool capacities of member states to reduce external debt burdens and secure more favourable fresh financing”. UNCTAD is also proposing that “borrowers should draw inspiration from private creditors and cooperate to share information and experiences”. We will hopefully see other initiatives around the concept of Borrowers’ Clubs in 2024, although the results from those coordination efforts regarding actual debt resolution or reforms won’t probably be seen as yet. 

Public debt through feminist eyes

Debt justice and feminist groups have been pointing at the gender justice implications of indebtedness.  This particularly relates to austerity policies, both in terms of impacts on the lives and livelihoods of women and gender minorities, and in relation to the assumptions around gender division of labour and women’s unpaid and underpaid domestic care work. Several initiatives will help make the feminist perspectives on debt more visible in 2024. 

Firstly, the sixty-eighth session of the Commission on the Status of Women (CSW68, 11 to 22 March 2024) will have a specific focus on financing, and several CSO initiatives will focus on the links between debt and gender justice. Later in the year, in May 2024, the book “Feminism in Public Debt. A Human Rights Approach” (edited by Juan Bohoslavsky and Mariana Rulli) will be published in English (the Spanish version is already available). In December, the 15th Association for Women’s Rights in Development (AWID) International Forum will bring together thousands of feminists and the debt crisis will be probably be part of the agenda. In summary, 2024 could be a year to make the feminist perspectives on public debt much more visible and explicit.

Debt architecture reform – a year for civil society to step up

Last but not least, 2024 will be a key year to advance in the debt architecture reform agenda. So far, the response of international financial institutions and creditor countries to the debt crisis is repeating the (failed) responses they offered in previous crises, blocking advances for debt architecture reform, and relying on a reform of the Common Framework that is locked in the G20 geopolitical paralysis and won’t be sufficient. In this context, the call for a multilateral sovereign debt resolution mechanism resonates only in some global south countries’ political declarations (see the G77 third south summit outcome document) and with some UN leaders (see the UN Secretary General Policy Brief on “Reforms to the International Financial Architecture”) and agencies (see the chapter V of the latest UNCTAD Trade and Development Report and recent blog). 

2024 poses several opportunities to raise the need for structural debt architecture reform, starting with the process towards the Financing for Development Conference (FfD4) in Spain in 2025. The 50th anniversary of the G7 in June and the 80th anniversary of the Bretton Woods Conference, where the IMF and World Bank were established, in July, are also opportunities to expose the failed solutions promoted by the global north countries and the institutions they dominate. In this context, the need for civil society to step up our work on debt architecture reform is today more urgent than ever. 

Finally, none of the institutional proposals on the table address the underlying structural causes of global south unsustainable indebtedness, rooted in the unequal economic, financial and trade relations, the colonial roots and the differentiated responsibilities in relation to global challenges, including the climate emergency. Our challenge lies also in making steps towards changing dominating narratives in order to influence not only the policy practices but also the understanding of the structural dimension of the debt crisis; to reposition the calls for unconditional debt cancellation and reparations, avoiding distractions of partial and false solutions; and, ultimately, to join forces towards an overhaul of the global financial architecture. 

The French version of this article is available here (via Plateforme Française Dette & Développement)