How to fight the silent debt crisis engulfing the global south

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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 cheery celebration of the IMF and World Bank’s 80th birthday a few weeks ago was upended by uncommon gloom. Public debt levels are elevated globally and are projected to hit $100tn by the end of 2024, largely driven by the US and China. But nowhere is the debt situation as critical as in the global south, where debt-service payments are at an all-time high, draining resources from essential development and climate goals. 

Africa is most affected, as the worst crisis in 80 years overwhelms the continent gradually and silently. Recent external shocks — Covid-19, interest-rate rises in advanced economies, geopolitical tensions and wars — have caused public debt to soar by 240 per cent between 2008 and 2022. Over half of African countries now spend more on interest payments than on healthcare, and lack the fiscal space to invest in sustainable development. Urgent action is needed; 17 of the 20 countries most vulnerable to climate change are in Africa.

Away from public view, conversations at the G20 summit in Rio de Janeiro and COP29 in Baku have stressed the need to drastically scale up finance for climate action and sustainable development, and the silent debt crisis in the global south.

It is obvious that the G20 Common Framework for debt treatments is not fit for purpose. It operates on a case-by-case basis and does not provide a predictable pathway to substantial debt relief that will allow countries to boost green growth and climate investment. A new systemic consensus is necessary.

Ahead of South Africa’s G20 presidency in 2025, it is imperative that a breakthrough be secured along the following lines. First, an enhanced debt sustainability analysis must 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 is dire and who need comprehensive debt restructuring to invest in climate and development. It would involve all international creditors — private, bilateral and multilateral — according to fair comparability of treatment that also considers the concessionality of the financing. It would be anchored by a new large-scale debt relief initiative similar to those of the early 2000s, urgently needed before more countries sink deeper into a vicious cycle. A multilateral sovereign-debt restructuring mechanism is needed in the longer term.

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

Both pillars are essential to a balanced position that reflects the needs of all highly indebted countries. Beyond this, all emerging markets and developing countries should receive fresh and affordable liquidity to enable investments that put them on a growth-enhancing path. For this, more affordable lending from multilateral development banks will be necessary, and a new issuance of special drawing rights.

Securing these reforms will require urgent, constructive dialogue between the world’s major powers, particularly the US and China. If we fail to act, the debt crisis will exacerbate social instability, undermining efforts to meet climate and development goals. The world must embrace innovative, equitable solutions. South Africa’s G20 presidency offers a critical opportunity to forge a bold consensus on debt relief, climate action and sustainable development — one that truly benefits all. There is no planet B — half-measures are no longer enough.