GS2 – International Relations
Context:
At the FfD4 Summit in Seville, the doubling of the Global South’s share in global debt—from 16% in 2010 to 30% in 2023—highlighted systemic flaws in the international financial system.
Current Trends
- Debt Servicing Surge:
Developing countries spent $1.4 trillion on foreign debt in 2023—the highest in two decades. - Growing Fiscal Strain:
Over 54 countries now spend more than 10% of their revenues on interest payments, with Africa being most affected. - Development at Risk:
In many LMICs, debt servicing costs exceed investments needed for climate action and basic services.
Structural Inequities in Global Financial Systems
- Discriminatory Lending Rates:
Developing countries pay 2–4 times more in borrowing costs than the US, and 6–12 times more than Germany. - Bias in Credit Ratings:
Credit rating agencies treat the Global South as inherently “high-risk”, costing Africa $24 billion in interest and $46 billion in lost lending, as per UNDP. - Inequitable Pandemic Spending:
- Global North: Spent 12% of GDP on COVID recovery.
- Emerging markets: Managed only 6%.
- Low-income countries: Just 3%.
- Skewed Access to Climate Finance:
Heavily indebted nations struggle to secure climate finance, worsening developmental and ecological disparities.
Implications
- Human Development Impeded:
Debt burdens are shrinking budgetary space for education, healthcare, and infrastructure, stalling progress on SDGs. - Climate Inaction:
Nations cannot fund adaptation and mitigation efforts, heightening vulnerability to climate crises. - Eroded Sovereignty:
Governments are increasingly forced to choose between repaying debt or serving citizens’ needs.
Way Forward
- Reform Credit Ratings:
Demand transparency and accountability, incorporating climate vulnerability and development priorities in credit evaluations. - Establish UN-Led Sovereign Debt Mechanism:
Introduce a globally coordinated restructuring process to prevent perpetual debt cycles. - Expand Climate-Specific Concessional Finance:
Mobilise affordable finance for LMICs to pursue climate goals without worsening debt. - Strengthen South-South Finance Cooperation:
Promote alternative instruments and regional resilience funds free from conditionalities of the Global North.