Many developing countries, particularly in Africa, are experiencing a rapidly worsening sovereign debt crisis, according to global economic experts. Economic stability is at risk if this crisis is not addressed quickly and thoroughly, and experts are calling on G20 leaders to commit to strong actions as they prepare to meet this month in Johannesburg, South Africa.
The upcoming South African G20 presidency will focus on African debt sustainability, as low- and middle-income countries urge reforms to avoid debt derailing development. There are several priority areas, including the G20 Common Framework for Debt Treatment, debt transparency, and innovative financial mechanisms such as debt-for-climate swaps. To achieve this goal, it will be necessary to reduce the high cost of capital and improve access to reliable financing for development. G20 Ministerial Declaration on Debt Sustainability signals a commitment to tackle unsustainable debt and rising financing costs, particularly on the continent, through cross-border cooperation.
Speaking during a press briefing on charting solutions to the debt crisis, UN Special Envoy on Financing Sustainable Development Mahmoud Mohieldin described the crisis as “one of the biggest challenges of our time”.
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“Nobody can claim that they haven’t seen it coming,” Mohieldin said. “Even before the COVID crisis, back in 2019 and 2020, the World Bank… identified a rising wave of debt and called it the fourth wave,” recalling previous debt crises in Latin America, Africa, Asia, and the 2008 global financial crisis. “Each one of them ended with a crisis,” he said. “This one could be different, because it’s not global in nature, but it’s impacting many developing economies and emerging markets can use different indicators, or the typical indicators of debt-to-GDP ratios or debt service, and we can’t really understand why it’s a crisis facing many countries.”
Mohieldin said that global debt has risen more than 25% since 2019, while many developing economies and emerging markets are now paying far more in debt service than they receive in new loans.
“In the case of developing economies and emerging markets, they paid $25 billion more to their external creditors in debt service rather than receiving new disbursements,” he said. He argued that even countries exercising strong fiscal discipline are not seeing improvements in their debt-service ratios, largely because of the rising cost of capital.
“This is not only impacting enterprises and projects, but sovereigns themselves,” he said. A particularly perverse dynamic, he explained, is that even countries that have imposed strict fiscal discipline and achieved primary budget surpluses are still seeing their debt-service ratios explode, largely because of the extraordinarily high cost of capital they face in international markets.
The problem is very well identified
“You see that ministers of finance are trying to do their best in controlling their debt exposure… The external debt-to-GDP might be flat or declining… But surprisingly, that is not really reflected in their debt service ratio,” said Mohieldin. “This raises a very big question… because it has something to do with the cost of capital.” “The problem is very well identified,” he said. “But if this is the case, why are we not really seeing solutions being implemented?”
Mohieldien outlined a series of “technically feasible and politically plausible” measures, ranging from better debt and liquidity management to tools for preventing crises and restructuring the debt of countries unable to meet their obligations. The proposals include replenishing the International Monetary Fund’s Catastrophe Fund and the World Bank’s Debt Reduction Fund, as well as normalizing debt service pauses.
The common framework of the G20 also requires major reform, as it is currently unable to function as a truly collective mechanism, Mohieldin argued. Middle-income countries should be included, restructuring timelines should be stricter, and affected countries need to be more involved. In addition to improving the IMF-World Bank debt sustainability framework, SDRs should be used more effectively, and long-term investments should be made in infrastructure and sustainability rather than consumption.
More efficient debt swaps for development, climate, and nature, were needed, he said, spurred by the creation of a new platform to streamline swap transactions. Mohieldin also mentioned emerging coordination mechanisms, such as the formation of a Borrowers’ Club as a Global South counterpart to the Paris Club, and establishing a new Debt Forum in Spain where “credit supply and demand” could be brought into harmony under the principles of responsible lending and borrowing.
Trevor Manuel, the chair of the G20 Africa Expert Panel and South Africa’s former finance minister, called the extensive discussion surrounding debt this year the “flavor of the year” for financial regulators worldwide. Manuel said the necessity of finding fundamental solutions to the debt crisis rather than just making minor adjustments to the system’s flaws.
He criticized the discrepancy in the cost of capital for developing nations, using comparative data for Namibia vs. Germany and Egypt vs. Canada to demonstrate how the current system, influenced by rating agencies, leads to significantly higher bond yields for emerging markets despite healthier debt-to-GDP ratios or growth rates. “They take countries out of the debt market circulation for considerable periods of time,” Manuel said.
“As Mohieldin had said, G20 methodology is not inclusive. It’s punitive for countries to default.”
Manuel said that while sovereign defaults are rare due to their severe and costly nature, nations instead default on public services like healthcare and education to ensure creditors are paid. He referenced the Heavily Indebted Poor Countries (HIPC) debt relief initiative from 20 years ago, which he said was treated as a mere “transaction”.
“The HPIC was very significant for a number of countries, but the problem was that it was treated as a transaction and not as a substantive matter, and after a very short space of time, countries that had benefited from debt relief found themselves back in an unsustainable debt situation. This time would have to be different.”
Kenyan economist Jason Braganza said Africa’s spiraling debt burden has direct, damaging consequences for people’s daily lives.
“The continent right now, we’re saddled with the debt stop, now toppling just slightly over 1.3 trillion U.S. dollars, and debt servicing, which is getting close to half a trillion dollars,” Braganza said. “We are seeing close to half the continent beginning to allocate close to more than half of their budgets and half of their revenues, towards debt, interest service repayments. What this means is, whilst in the immediate term, creditors remain happy.”
This financial burden, he said, is causing a “default on development”, forcing nearly half of African nations to allocate over half of their budgets and revenues to debt repayment.
Braganza warned that prolonged debt pressure will reverse development gains, leading to worsening health and education outcomes across the continent. He said rising taxes that go toward debt repayment instead of public services are fueling anger and disillusionment among citizens, leading to growing social unrest. Kenya, Madagascar, Tanzania, and Cameroon recently witnessed protests in response to a broken social contract where public services fail to materialize despite taxes and national borrowing.
According to Braganza, this frustration stems from a breakdown in the social contract. Citizens no longer feel they receive services or value in return for the taxes they pay or the debt their governments incur. “Underpinning all of this, really, is the breakdown of the social contracts between citizens and the state,” he said.
For a solution, Braganza called for a “monumental shift in the power dynamics” of the global debt architecture. He suggested moving discussions from the G20 to a more democratic space like the United Nations, endorsing a proposed UN-led intergovernmental process to reform the system and establish a legal framework for sovereign debt.
“As we think about the human face of the debt crisis on the continent, and the social disclosure that it’s presenting, perhaps we also need to combine that with a more systemic and purposeful reform of the global debt architecture in a more democratic sense,” he said.
Founder and chair of the Liquidity and Sustainability Facility and a non-resident senior fellow at Brookings, Vera Songwe, said economic growth is key to reducing Africa’s debt. She connected the climate crisis with debt discussions, claiming that effective climate action can serve as a significant growth strategy. She pointed out that the easiest way to overcome debt is through economic growth, which she believes isn’t emphasized enough.
Songwe shared key insights from a report she co-authored, highlighting the importance of including climate challenges and benefits in macroeconomic and growth analyses, including the IMF’s Debt Sustainability Analysis (DSA). She cautioned that over the next decade, emerging markets will become the largest polluters in the world, as advanced economies have previously polluted and then fixed their issues.
“Emerging markets will be the ones who will be polluting the most, effectively killing themselves,” she said. “Essentially, we do need to make sure that we can begin to include climate in the growth of emerging market countries today.” Songwe said that the good news about it is that green, sustainable, and resilient growth is much faster growth, and it’s much sturdy growth.
She said that it is essential to rethink how Debt Sustainability Analyses are conducted through a climate lens. The report’s second recommendation suggests a government-wide approach to identifying climate-related risks and opportunities in areas like health, education, the environment, finance, and investment. By investing in resilient infrastructure, countries can strengthen their economies, attract better investments, and ultimately improve their credit ratings.
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She said building climate-related resilient infrastructure, such as a seabed wall in Senegal to protect tourism, can lead to better investments and higher credit ratings. “We need domestic policy, we need principled leadership, and we need clarity on the domestic side. Debt is the contraction of obligations that may not necessarily pay out the return that is needed,” said Songwe.
Martha Tukahirwa, Regional Coordinator for Africa at Fight Inequality Alliance, said that the reality is that the global economy is just not faltering. “Right now, it’s extractive, it’s exclusionary, it’s highly unstable.”
Debt justice must be viewed through the lens of those bearing the heaviest consequences, Tukahirwa believes. “It is important to situate our arguments in the lived realities of those who are bearing the brunt. And also bearing in mind that those who are bearing the brunt are mostly women, you know, girls, and gender-diverse people,” said Tukahirwa. “Because, again, those are the ones that are carrying the care burden and, and having to, you know, feed economies, and whilst all that is happening, they’re also bearing the band of of high taxes, and, and also, what unstable… what unstable living realities look like.”
She said that while the G20 brings together the world’s largest economies, it excludes the vast majority, the 99%.
“This means that there is the 99% that are seated on the margins, that do not have a seat at the table, and so this is an opportunity,” she said. “This is an opportunity for global solidarity, this is an opportunity for us to come together. She announced the We The 99 People Summit, a parallel space for global solidarity, which is going to happen on the auspices of the G20, is this space to really build a shared narrative to create a shared agenda.
“We are really making sure that we build a non-elitist agenda, and therefore it’s rooted in the values of social justice, in the values of inclusion,” said Tukahirwa.
This summit aims to build a shared narrative and agenda centered on the wants and struggles of ordinary people, from a farmer in Namibia to a street vendor in Kenya, and bring together feminists, trade unions, youth activists, and farmers to reimagine organizing to present a unified, non-elitist demand for justice rooted in the values of social justice and inclusion.
