Global south now repays more in debt than it gets in grants and loans

The idea behind development is that money should flow from wealthy nations to low- and middle-income countries. But last year, the global south paid out tens of billions more in debt repayments than they received in new lending and official development assistance, according to new research from anti-poverty organization ONE Campaign. And this year looks likely to be the same. The ONE data, released in advance of the World Bank-IMF Spring Meetings this week, examines net financial transfers to nations in the global south and is based on data from the World Bank and the Organisation for Economic Co-operation and Development. ONE found that in 2022 — the most recent year for which we have confirmed debt data — the balance between money in and money out for lower-income countries had fallen to its lowest level since the global financial crisis. From a peak of $225 billion in 2014, the balance dropped to $51 billion in 2022. Further analysis based on World Bank projections found the balance is expected to dip further. In 2023, instead of money flowing into global south nations, a net $21.4 billion is projected to have flowed out. And $50.5 billion more is expected to flow out this year. <div class="flourish-embed flourish-chart" data-src="visualisation/17617870"><script src="https://public.flourish.studio/resources/embed.js"></script></div> This will be the worst balance of payments for the global south in at least a quarter of a century. The last time the global south made net payments was in 2004, following agreements by the Paris Club, a group of 22 wealthy nations that lend to governments in need, to restructure debt in 1996 and 1999. The restructures led to the Heavily Indebted Poor Countries initiative from the World Bank and International Monetary Fund, intended to ensure that “no poor country faces an unmanageable debt burden.” But the ONE research found that in 2022, more than 1 in 5 low- and middle-income countries paid more to service debt than they received in external funding and finance, and this could rise to more than 1 in 3 by 2025. This suggests there are once again alarm bells about the ability of these countries to manage their debt. There are several reasons behind the current debt crisis, ONE said in its analysis. One is that aid from wealthier donor nations has not grown with need. While new figures published last week show record levels of ODA, the amount of aid cash reaching the global south has flatlined, as donors spend more on assisting refugees domestically, keeping aid money within their own borders. China, a major lender, has also made less money available. But a larger issue is a sharp fall in private investment, which ONE said had dropped from $257 billion in 2017 to $126 billion in 2022. Meanwhile, inflation, driven by the COVID-19 pandemic and the war in Ukraine, has pushed up interest rates in the United States and Europe, which in turn has driven up borrowing costs for countries in the global south, and weakened their exchange rate with the dollar. “This squeeze is occurring when poverty and hunger are on the rise for the first time in a generation and countries need to make transformative investments to address pressing climate and development needs,” ONE said in its analysis. “Those needs are estimated at US$1 trillion per year in external financing by 2030. “The good news is that practical and innovative solutions exist to scale financing to meet the demand. What’s missing — and urgently needed — is political action to bring the global economy back into balance.” ONE is calling for multilateral development bank reform to allow the World Bank and others to provide more low-cost finance. It is asking in particular for high-income countries to contribute more to the World Bank's International Development Association replenishment. And it is asking for reform of the G20’s Common Framework, which is intended to support countries at risk of debt distress, but which has been viewed by many as too costly and slow.