A crushing debt burden is derailing development across the global south, with governments now spending nearly half their revenues just to service existing loans. In low-income nations, this figure skyrockets to as much as 70 percent of state income, forcing drastic cuts to essential public services.
The scale of the problem was highlighted as Ethiopia faced potential lawsuits from its creditors in English courts after talks to restructure a $1 billion debt collapsed. This pattern of protracted and failed negotiations with private lenders is repeated in nations like Zambia, Chad, and South Sudan, where restructuring processes can drag on for years.
The financial strain is stark. With high interest rates, governments are allocating three times more money to debt payments than to education, and over four times more than to health spending. This reality creates not just an economic crisis, but a human one, directly limiting improvements in citizens’ lives and threatening democratic governance.
Calls for systemic reform are growing. While the G20 recently acknowledged the severity of the issue, it offered no concrete plan. A more ambitious proposal to task the International Monetary Fund with finding new ways to assist countries was reportedly blocked by China.
Critics argue the current system is broken. The IMF’s method for assessing whether a country’s debt is “sustainable” is under particular scrutiny. Campaigners point out that a debt load deemed manageable by international bodies can feel catastrophic to populations lacking clean water, food security, and basic public services.
One proposed solution is to cap debt repayments for qualifying low-income countries at 10 percent of government revenues, freeing up vital funds for development and climate action. Another focuses on changing the legal framework, particularly under English law, which often favors commercial creditors and allows them to sue governments during restructuring talks, as seen in the Ethiopian case.
The United Kingdom, whose laws govern much of this debt, has sent mixed signals. While some senior figures initially showed interest in legal reforms, the government has since backed away, citing Treasury concerns about scaring off private investment. Instead, the UK has focused on establishing a “London Coalition” to facilitate dialogue with private lenders.
This comes as the UK slashes its own aid budget, part of a wider trend among traditional donor nations including the US, France, and Germany. With the US taking the G20 presidency next year, little progress on debt relief is expected. Attention is now turning to 2027, when the UK is likely to lead the group, with campaigners urging it to champion major reforms.
The need for a breakthrough is urgent. As one advocate stated, the prevailing message from officials is that the situation is too complex for significant change. But from the perspective of those living with the consequences, the severity of the crisis demands an inflection point—now.
