Rising borrowing costs and reductions in aid budgets from Western governments, including the UK, are contributing to an escalating debt crisis in many developing countries. Recent developments in Ethiopia underscore the urgency of this issue, as negotiations to restructure $1 billion in debt failed, leaving the country at risk of being sued by creditors in English courts.
Several other nations, such as Zambia, Chad, and South Sudan, have encountered delays and disruptions in their loan restructuring efforts, often taking years to reach resolutions. An analysis from Development Finance International (DFI) indicated that, on average, debt servicing now consumes 45% of government revenues across the Global South, with this figure rising to 70% in low-income nations. High interest rates have led governments to spend three times more on servicing debts than on education and more than four times as much as on health care.
The situation raises questions about the broader implications for development and governance in these countries. Activists and leaders from developing nations are advocating for significant reforms in the current multilateral debt relief framework, particularly during South Africa’s upcoming presidency of the G20. Although a recent ministerial declaration from the G20 acknowledged the seriousness of the debt issue, no specific solutions were proposed.
Key proposals from campaigners include reforms to the International Monetary Fund’s (IMF) debt sustainability analysis and capping debt repayments for low-income countries at 10% of revenues to facilitate progress on social issues. There is also a call for changes to legal frameworks governing private sector debt, which is primarily governed by English law. Proposed legislation aims to prevent commercial creditors from gaining more favorable terms than other parties during debt restructuring.
Amid these discussions, UK officials have expressed skepticism regarding potential changes, citing concerns about their possible impact on private investment. The UK government, having recently reduced its aid budget, is faced with decisions on future overseas project funding. As various countries continue to cut aid, there is limited optimism for advancements in global debt relief.
Source: https://www.theguardian.com/world/2025/oct/19/west-act-stop-global-south-strangled-by-debt