By : Ahmad M. Awad
Jordan Daily – The issue of sovereign debt sustainability dominated discussions during the 2024 annual meetings of the International Monetary Fund (IMF) and the World Bank, recently held in Washington, D.C.
A range of other critical issues – such as financial inclusion, austerity policies, climate change and climate justice, reforming and restructuring the global financial system, and tax policies – were also discussed, each deserving their own in-depth analyses.
The author had the opportunity to participate in these meetings, which addressed these challenges faced by populations of various countries – particularly countries in the Global South, who are grappling with rising debt levels and debt servicing burdens, which include both repayments and interest.
The concept of “debt sustainability” refers to a country’s ability to meet its financial obligations in a sustainable manner without resorting to austerity measures that harm society and the economy.
A “sustainable” manner means managing debt to prevent recurrent financial crises and without threatening economic and social stability.
It is worth noting that sovereign debt and its servicing costs have reached unprecedented global levels. According to IMF estimates, global public debt is expected to surpass $100 trillion by the end of 2024, representing approximately 93% of the world’s GDP. This figure would more than triple if private debt were included.
More concerning is the cost of debt servicing. According to expert international reports, debt service payments in (the Global South), particularly low-income nations, have reached record levels, amounting to around 14% of their total revenues, surpassing what these countries spend on health and education combined.
Consequently, many discussions at the IMF and World Bank annual meetings focused on the sovereign debt issues facing the Global South and the diminished ability of these nations to keep up with debt payments, especially given the massive challenges posed by escalating debt burdens. Several questions arose about the austerity policies imposed by international financial institutions as a prerequisite for debt restructuring. Such policies worsen the economic and social conditions in these countries, who are often already facing dire economic straits in turning to an international lender-of-last-resort.
During the sessions, there were increasing calls for debt cancellation and/or reduction as a way to ease the financial strain on affected countries and enable them to pursue their development goals.
Numerous experts offered various proposals to help developing countries overcome the global sovereign debt crisis and protect their populations from the austerity measures reducing spending on social protections (particularly healthcare and education) that is enforced by IMF programs.
Among the proposals discussed was the canceling or alleviating of debt burdens for the most impoverished countries, freeing up resources to allocate toward local development initiatives. Another suggestion involved the fair re-distribution of Special Drawing Rights (SDRs), enabling the IMF to provide additional global liquidity to assist poorer countries in addressing debt challenges and burdens. Additionally, the idea of debt buybacks, co-financed by the IMF and wealthy nations, was considered as a means to ease debt servicing burdens. A final suggestion called for supporting an equitable international debt management framework to be established with fair debt restructuring mechanisms for developing countries, ensuring true debt sustainability without threatening a nation’s economic stability.
The continual rise in sovereign debt levels and debt servicing costs poses a grave threat to global economic stability. Each year, tens of billions of dollars flow from the Global South to wealthy countries solely as debt interest payments. This rapid and accelerating increase in debt and servicing costs, driven by the inequitable structure of the global economy, undermines the fundamental ability of indebted countries’ governments to fulfill their obligations without neglecting their social responsibilities to their citizens.
Ahmad Awad is the founder and director of the Phenix Center for Economic Studies, specializes in human rights and socio-economic issues. Advocate for human rights and promoting democracy and civil society at local, Arab, and international levels.
The opinions expressed in this article are those of the writer and do not necessarily reflect the views or positions of the Jordan Daily.
