How can we combat the silent debt crisis engulfing the Global South?

On By Pranco

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The writer is a Nigerian lawyer, professor and politician who served as the 14th Vice President of the Federal Republic of Nigeria from 2015 to 2023.

What would have been a cheerful celebration of the 80th anniversary of the IMF and the World Bank a few weeks ago was marred by an unusual gloom. Public debt is high worldwide and is expected to remain that way hit $100 trillion by the end of 2024, largely driven by the US and China. But nowhere is the debt situation more critical than in the Global South, where debt payments are at a low ebb highest everdiverting resources from essential development and climate objectives.

Africa is the most affectedas the worst crisis in eighty years gradually and quietly engulfs the continent. Recent external shocks – Covid-19, interest rate rises in advanced economies, geopolitical tensions and wars – have caused sovereign debt levels to rise. float between 2008 and 2022 by 240 percent. More than half of African countries now spend more on interest payments than on healthcare, and lack the budgetary space to invest in sustainable development. Urgent action is needed; 17 of the 20 most countries vulnerable of climate change are in Africa.

Out of public view, conversations at the G20 Summit in Rio de Janeiro and COP29 in Baku have highlighted the need to dramatically scale up financing for climate action and sustainable development, and the silent debt crisis in the Global South.

It is clear that the G20 common framework for debt treatment is not fit for purpose. It works on a case-by-case basis and does not provide a predictable path to substantive debt relief that will allow countries to boost green growth and climate investment. A new systemic consensus is necessary.

In the run-up to the South African G20 presidency in 2025, it is imperative that a breakthrough is achieved along the following lines. First, there needs to be better analysis of debt sustainability capture the investment needs for climate resilience and green growth. This will help distinguish between two groups of countries: those that need immediate, comprehensive debt relief and those that need targeted liquidity support.

A debt solution can then be formulated around two pillars. The first is for those countries whose debt levels are high and which need comprehensive debt restructuring to invest in climate and development. All international creditors – private, bilateral and multilateral – would be involved, on the basis of fair comparability of treatment, also taking into account the concessionality of the financing. It would be anchored by a new major debt relief initiative, similar to that of the early 2000s, which is urgently needed before more countries fall deeper into a vicious circle. In the longer term, a multilateral mechanism for sovereign debt restructuring is needed.

The second pillar would benefit countries that are not heavily indebted and can achieve their climate and development goals with lower capital costs and more fiscal space. They will be well served by credit enhancements from multilateral institutions and debt suspension.

Both pillars are essential for a balanced position that reflects the needs of all highly indebted countries. In addition, all emerging markets and developing countries should be provided with new and affordable liquidity to enable investments that put them on a growth-enhancing path. This will require more affordable loans from multilateral development banks and a new issuance of Special Drawing Rights.

Securing these reforms will require urgent, constructive dialogue between the world’s major powers, especially the US and China. If we do nothing, the debt crisis will worsen social instability and undermine efforts to achieve climate and development goals. The world must embrace innovative, equitable solutions. The South African G20 presidency offers a crucial opportunity to build a bold consensus on debt relief, climate action and sustainable development – ​​a consensus that truly benefits everyone. There is no planet B; half measures are no longer enough.