Global Debt Crisis: A Looming Threat to Growth and Stability

Many countries are facing mounting pressure from increased interest payments and debt repayments. Low-income countries have been particularly hard hit by the economic scars left by the pandemic, global conflicts, and surging global interest rates. Their debt servicing costs have more than doubled in the last decade, reaching around 14% of their revenue by the end of 2023 compared to 6% a decade ago. After years of heavy borrowing, short-term debt repayments in low-income countries have tripled, reaching approximately $60 billion compared to an annual average of $20 billion between 2010 and 2020. While improvements in creditor practices have streamlined sovereign debt restructuring processes, further efforts are needed to accelerate these processes and reduce uncertainty. The growing burden of debt payments is hindering growth and job creation, putting significant strain on public resources, at a time when countries need vital investments to achieve sustainable, inclusive growth and climate adaptation. Failure to address these liquidity pressures could lead to solvency issues in many vulnerable countries. The international community needs to act now to prevent this outcome. The IMF and World Bank propose a three-pronged approach to support low-income countries and other vulnerable nations while they navigate these challenges, aiming to create fiscal space for growth and resilience.