Opinion: Worst Debt Crisis in History

Love, Justice and Climate Change

One of the major obstacles to solving the global climate crisis is the extreme debt crisis in much of the Global South. Just when the whole world needs nations in the Global South to participate in addressing the climate crisis, many of these nations are hobbled by impossibly high levels of debt.

The Pope’s message to a recent debt crisis meeting was reportedly, “The world’s poorest countries are being crushed by unmanageable debt and richer nations need to do more to help.”

This is more than a debt and climate crisis, of course. This is a crisis in health, education, and basic living standards, too. Across 144 developing countries, debt service is absorbing an average of 41.5% of government revenues. In the first quarter of this year in Nigeria, servicing the national debt consumed 74% of all federal government revenue. How can any nation function under such circumstances?

Catastrophic Implications for the World
This has been a growing global problem for some years and is now finally getting some more attention among the wealthier nations. The Guardian has called it the “worst debt crisis in history.” Two weeks ago the New York Times published an article titled “Africa’s Debt Crisis Has ‘Catastrophic Implications’ for the World.” In the New York print version, it appeared on the first page of the second section.

How did this crisis get to be so bad? Many Global South counties have abundant natural resources and would be relatively wealthy countries if they hadn’t suffered several centuries of exploitation and resource theft by the countries of the Global North. For instance, before colonization by the British, India was one of the wealthiest countries in the world, with roughly a fourth of the world’s total wealth. Recent research has shown that Great Britain extracted roughly $45 trillion from India from 1765 to 1938. Today India is among the lowest third of all nations in per capita income.

The extraction of wealth did not end when formal political colonization ended. Some scholars calculate that the wealthy nations are currently extracting $2.2 trillion per year from the poorer countries.

Forces Beyond Their Control
Government mismanagement and corruption have played some role in creating the debt situation, but forces beyond the control of the debtor nations have blown it into an extreme crisis. Many of the loans were designed to benefit the lending nation and left the poorer nations with large amounts of debt and projects that will never generate their (falsely) promised rate of return.

Then the COVID crisis depressed economies and raised health costs and the low-income nations could only meet the most basic needs of their people through borrowing. The situation was made worse by the Ukraine war raising food and energy costs. Climate disasters have created even greater needs in many poor countries.

Then the U.S. raised interest rates in order to control domestic inflation and things spiraled even further out of control. The higher interest rates in the U.S. caused international interest rates to rise. The amount debtor nations were required to pay each year ballooned catastrophically. In some cases poor nations needed to obtain new loans at even higher rates in order to keep from defaulting on prior loans. This has all been very profitable for the lending nations and institutions, but disastrous for the debtors. A new study finds that in 2024 the Global South is expected to pay $50 billion more in debt repayment and interest than it receives in grants and loans.

Repayment is Impossible
Fifty-four countries are in debt crisis and at least another 45 are struggling to pay their debts. It is clear that many of these countries will never be able to pay these debts. Their efforts to pay them are ruining the lives of their people and making effective climate action impossible. No amount of “reform” or rescheduling of debts is going to make repayment possible.

It is clearly time to cancel much of this debt and free these nations from the  devastation that sending money out of their countries to lenders in the wealthy nations is causing. The wealthy nations and financial industry are not going to go bankrupt if they cancel this debt. The Global North has been the primary creator of this debt crisis and must be the one to end it. Even if every penny of the debt of Global South nations is cancelled, the Global North will still have taken far more from the Global South than they have returned.

Movement for Debt Cancellation
Fortunately, there is a growing global movement for debt cancellation. Pope Francis has declared the year 2025 to be Jubilee year and is “calling on the wealthy nations to forgive the debt of the world’s poorest countries.” He’s also calling for international financial reforms that will provide long-lasting relief from poverty and enable true care for the Earth. (In the Judeo-Christian tradition, a Jubilee year is a year when slaves are freed, debts are forgiven, and the land is rested.)

#CancelTheDebt because there is no #ClimateJustice without #DebtJustice

PS. I also invite you to read my earlier posts: “Cancelling the Debts of Global South Nations: A Necessary Part of the Worldwide Climate Effort – Parts 1 and 2” which have a bit of information about the history of debt cancellation and a call to action.

Russ Vernon-Jones was principal of Fort River School 1990-2008 and is currently a member of the Steering Committee of Climate Action Now-Western Massachusetts. He blogs regularly on climate justice at www.russvernonjones.org.