Global Public Debt and its Impact on Sustainable Development

A recent report from the UN Conference on Trade and Development (UNCTAD), titled “The World of Debt 2025: It is time for reform,” highlights a critical challenge to the achievement of the Sustainable Development Goals (SDGs). Global public debt reached a record $102 trillion in 2024, with low-income countries accounting for a disproportionately increasing share of $31 trillion. This escalating debt crisis directly undermines progress across multiple SDGs by diverting essential resources from development priorities to interest payments.

Impediments to SDG 3 (Good Health) and SDG 4 (Quality Education)

The report indicates that the diversion of funds has severe consequences for human development. A record 61 nations are now spending at least 10 percent of government revenues on interest payments. This financial pressure creates a direct conflict with investment in public services, jeopardizing key development goals.

• Approximately 3.4 billion people reside in countries where government expenditure on debt interest surpasses spending on health and education combined.
• This trend severely compromises the ability of nations to work towards SDG 3 (Good Health and Well-being) and SDG 4 (Quality Education), as budgets for hospitals, schools, and social programs are constrained.
• In 2024, developing nations paid a record $921 billion in interest, representing a net outflow of funds and a significant drain on resources that could otherwise be allocated to sustainable development initiatives.

The Shifting Creditor Landscape and its Implications for SDG 17

A fundamental shift in the composition of creditors for low- and middle-income countries complicates efforts for international cooperation and debt restructuring, a key target of SDG 17 (Partnerships for the Goals). There has been a marked increase in borrowing from private creditors, who now hold the majority of external public debt.

Challenges to Achieving SDG 10 (Reduced Inequalities)

The international financial system exhibits systemic inequalities that exacerbate the debt burden on developing nations, hindering progress on SDG 10 (Reduced Inequalities). Developing countries face significantly higher borrowing costs, often two to four times greater than those for developed nations like the United States. This disparity perpetuates a cycle of debt and widens the economic gap between nations.

1. Private creditors, including commercial banks, asset managers, and hedge funds, now hold approximately 61% of the external public debt of low- and middle-income countries, an increase from 46% in 2010.
2. Multilateral institutions like the IMF and World Bank hold about 10% of this debt.
3. Bilateral lenders account for the remaining 30%.

Case Studies: Debt Distress and Consequences for National Development Goals

The power wielded by private creditors in debt restructuring negotiations presents a significant obstacle to achieving national development priorities, including SDG 1 (No Poverty) and SDG 16 (Peace, Justice and Strong Institutions). Several countries in debt distress face prolonged negotiations and unfavorable terms that force cuts to vital public services.

• Zambia: With one of the world’s highest poverty rates, Zambia defaulted in 2020 and has been engaged in protracted negotiations with private creditors for over four years, delaying economic recovery and poverty reduction efforts.
• Ghana: The government has been unable to secure a restructuring deal with non-bond private creditors, who are reportedly using political pressure to ensure repayment in full.
• South Sudan: Facing a severe hunger crisis and disease outbreaks, the country was successfully sued by a private lender in a UK court for an amount equivalent to 47% of its total government revenue, crippling its capacity to address urgent humanitarian needs related to SDG 2 (Zero Hunger) and SDG 3.
• Ethiopia: Private bondholders have resisted debt relief measures, threatening legal action to enforce repayment.
• Sri Lanka: A private creditor has rejected a bondholder restructuring plan and is pursuing legal action in New York.

The Role of Private Creditors and Governance Challenges (SDG 16)

The scale of major private asset managers, whose assets under management often dwarf the GDP of the countries they lend to, creates a significant power imbalance. This dynamic can subordinate national economic policy to the interests of creditors, undermining the principles of sovereignty and effective governance central to SDG 16. The financial strategies of a few large firms can influence national financing conditions, forcing debtor countries to implement austerity measures that negatively impact their populations and stall progress on poverty, health, and education goals.

Analysis of Sustainable Development Goals (SDGs) in the Article

1. Which SDGs are addressed or connected to the issues highlighted in the article?

1. SDG 1: No Poverty
   • The article connects high debt burdens directly to economic impoverishment and poverty. It mentions that in countries like Zambia, which is in “debt distress,” poverty rates are “among the highest in the world.” The pressure to repay debt leads to austerity measures (“more belt tightening, no work”) that worsen poverty for the general population.
2. SDG 3: Good Health and Well-being
   • The article explicitly states that “some 3.4 billion people live in countries that spend more on interest than health and education.” This diversion of funds from the health sector directly undermines the goal of ensuring healthy lives. The text also notes that debt repayment forces countries to make “cuts in the already meagre healthcare.”
3. SDG 4: Quality Education
   • Similar to SDG 3, the article highlights that government spending on debt interest payments surpasses spending on education in many countries. This lack of investment cripples the education system and obstructs the goal of providing quality education for all. The mention of “cuts in the already meagre… education” reinforces this connection.
4. SDG 10: Reduced Inequalities
   • The article’s core theme is the inequality within the global financial system. It points out the “stark disparities and systemic inequalities” where “poor countries’ borrowing costs two to four times that of the US.” It also describes the disproportionate power wielded by a “narrow financial oligarchy” and private creditors like BlackRock over sovereign nations, exacerbating inequality between and within countries.
5. SDG 17: Partnerships for the Goals
   • This goal is central to the article’s discussion on global finance and debt. The article details the failure of the international financial system to ensure debt sustainability for developing countries. It discusses the shift in debt from multilateral institutions to private creditors, the challenges in debt restructuring (e.g., in Zambia, Ghana, Sri Lanka), and the need for systemic reform, all of which are key components of SDG 17.

2. What specific targets under those SDGs can be identified based on the article’s content?

1. Under SDG 1 (No Poverty):
   • Target 1.a: “Ensure significant mobilization of resources from a variety of sources… to implement programmes and policies to end poverty.” The article demonstrates how the net outflow of funds from developing countries to creditors (paying “$25 billion more in interest than they received in new sources of income”) directly contradicts this target by draining resources that could be used for poverty reduction.
2. Under SDG 3 (Good Health and Well-being) & SDG 4 (Quality Education):
   • Target 3.8: “Achieve universal health coverage…” and Target 4.a: “Build and upgrade education facilities…” are directly undermined. The article’s central finding that many countries “spend more on interest than health and education” shows that financial resources are being diverted away from achieving these targets. The “cuts in the already meagre healthcare and education” are a direct consequence.
3. Under SDG 10 (Reduced Inequalities):
   • Target 10.5: “Improve the regulation and monitoring of global financial markets and institutions…” The article’s description of how private creditors like hedge funds and asset managers operate with immense power and little control, leading to debt crises, highlights the failure to meet this target.
   • Target 10.6: “Ensure enhanced representation and voice for developing countries in decision-making in global international economic and financial institutions…” The article illustrates the opposite, where debtor nations have little power in negotiations with powerful private creditors, as seen in the cases of Chad, Ethiopia, and Ghana.
4. Under SDG 17 (Partnerships for the Goals):
   • Target 17.4: “Assist developing countries in attaining long-term debt sustainability through coordinated policies aimed at fostering debt financing, debt relief and debt restructuring…” This target is the most relevant. The article provides numerous examples of failures in debt restructuring (Zambia, Sri Lanka, Ukraine) and the lack of coordinated policies, especially with the refusal of private bondholders to provide debt relief (“take a ‘haircut'”).

3. Are there any indicators mentioned or implied in the article that can be used to measure progress towards the identified targets?

1. Indicator for Target 17.4 (Debt Sustainability):
   • The official SDG indicator is 17.4.1: Debt service as a proportion of exports of goods and services. The article provides several related data points that serve as direct measures of debt burden:
     • “A record 61 countries… spent at least 10 percent of government revenues on payments” to creditors. This is a powerful measure of the fiscal burden of debt.
     • Low- and middle-income countries paid a “record $921 billion in interest.”
     • Global public debt rose to “$102 trillion in 2024,” with low-income countries accounting for “$31 trillion.” This measures the total debt stock.
2. Indicator for Target 1.a, SDG 3 & SDG 4 (Public Spending):
   • The article implies an indicator related to the proportion of government expenditure on essential services (health, education) versus debt service. The key finding that “3.4 billion people live in countries that spend more on interest than health and education” is a direct comparative measure that highlights the trade-offs being made, showing a negative trend for this indicator.
3. Indicator for Target 10.5 (Financial Inequality):
   • The article provides a clear indicator of systemic inequality in financial markets: the difference in borrowing costs. The statement that “poor countries’ borrowing costs two to four times that of the US” is a quantifiable indicator of the disadvantages faced by developing nations in the global financial system.
4. Indicator for Target 17.4 (Debt Composition):
   • The article provides data on the changing composition of external public debt, which is a crucial indicator for understanding debt restructuring challenges. It states that “low- and middle-income countries now owe about 61 percent of their external public debt to private creditors,” an increase from “46 percent in 2010.” This shift is a key metric for analyzing debt sustainability.

4. Summary Table of SDGs, Targets, and Indicators

Source: wsws.org