This policy briefing, produced by Development Finance International and based on the Debt Service Watch database, shows that World Bank borrowing countries now face the worst debt service crisis since global records began. In 2024, debt service is absorbing an average 43% of budget revenue: 46 countries are paying more than half of revenue on debt service, and 68 over one third. These figures are more than twice the levels in LICs before HIPC/MDRI; and higher than those in LAC before the 1980s Brady Plan.

Debt service is absorbing 42% of spending in all countries, and 55% in Africa. It exceeds 15% of government spending in 112 countries, and 20% in 74. It equals combined total spending on education, health, social protection and climate across all countries, and exceeds it by two thirds in Africa. It is 2.7 times education spending, 4.2 times health spending, 11 times social protection spending and 54 times climate spending. In 2025 debt service will rise further, with countries paying an average 47% of budgets.

The international community has recognised that there is a severe debt service (or “liquidity”) crisis) for many countries. According to IMF forecasts and the Debt Service Watch database, this high debt service burden will continue for the next decade for almost all affected countries (the exceptions being Tajikistan and Uzbekistan). Proposals to resolve the crisis by reprofiling debt service over a short period will therefore not work – indeed they will worsen the crisis in future years by adding to already high debt service burdens.

This briefing presents three proposals which would all reduce debt service burdens substantially, but be tailored to the circumstances of different country groups. All three could have overarching goals of bringing service down to 10% of revenue for LIDCs and 15% for MACs. However, their precise implementation would be designed case-by-case, dependent on countries requesting support, and to match country needs.

1. For up to 34 countries which constantly access markets, it suggests “credit enhancement” and other measures to reduce borrowing costs to levels similar to MDBs;

2. For up to 51 accessing global markets less frequently, it suggests a 10-year debt service holiday, with cancellation for the worst affected, and long-term rescheduling of principal and interest for the rest;

3. For those hit by (mostly climate-related) natural disasters, it suggests automatic measures to cancel their debt service for the three years following the disaster, while they rebuild and recover.

Finally, it urges G20 leaders to conduct a comprehensive assessment of the current debt service crisis now, leading to a roadmap for actions to solve the crisis in 2025 under South Africa's G20 Presidency.

The 5th edition of the Commitment to Reducing Inequality Index (CRI) (www.inequalityindex.org) launched today, assesses 164 countries for whether they are taking policy measures to reduce inequality. It finds that four in five countries have cut the share of their budgets going to education, health, and/or social protection due to crushing debt burdens, austerity and conflicts; four in five have backtracked on progressive taxation; and nine in ten have regressed on labour rights and minimum wages. Combining data from these three pillars, the Index shows that nine out of ten countries have backtracked. Without urgent actions to reverse this trend, economic inequality will continue to grow.
On the other hand, the international community is moving to accelerate global action. The World Bank and potentially the UN are adopting new indicators to measure inequality more accurately, providing a unique opportunity for the IMF and World Bank to enhance their commitment to accelerate progress: the report suggests exactly how they could better support governments, allowing us to make significant progress in reducing inequality.

On 3 October, DFI participated in a Co-Facilitators Retreat to prepare the FFD 2025 conference, organised by the Government of Norway for all co-facilitating member states. Matthew Martin of DFI participated as an expert, together with the Paris Club co-chair. in the session on “Debt and Access to Finance”. He presented DFI’s views on the scale of the debt crisis, the immediate debt relief measures the G20 could take under the Brazilian and South African presidencies, and how to ensure that all creditors participate in relief. He also discussed the more normative measures the UN and FFD conference could take or discuss, including adding a protocol to the UN Convention Against Corruption dealing with predatory debt; regulating bond markets; reforming debt sustainability analysis; enhancing accountability of debt policies to national stakeholders; and (for development partners) continuing to provide capacity-building support to countries of the global South.

On 18 September, UNAIDS launched the two reports which it commissioned from DFI on Financing the End of AIDS as a Public Health Threat in Africa: Debt Relief and Tax Revenue. The reports were written by Gail Hurley and Matthew Martin, with data compiled by David Waddock and Maria Holloway. A panel of Winnie Byanyima, Executive Director of UNAIDS; Matthew Martin of DFI; Attiya Waris, UN Independent Expert on Foreign Debt and Human Rights; and Kevin Watkins, Visiting Professor at the LSE discussed the urgent need for debt relief to fill the financing gaps not just to confront HIV, but for the many closely related social sectors (education, food, health, social protection and water), and the fact that the potential amount of debt relief available (calculated using the Debt Service Watch database) could fill all of these gaps and more. The video of the webinar can be seen here and the two reports are here and here.

The G20 Global Sovereign Debt Round Table held a special workshop on Addressing Liquidity Challenges. Matthew Martin spoke at the workshop, emphasising that this is a debt service not a liquidity crisis, and the degree to which debt service is crowding out SDG spending, and that this will continue over the next decade so cannot be solved by short-term service reprofiling. He also made three proposals to deal with high debt service in 3 groups of countries (MACs, LIDCs and disaster-hit countries), all of which are explained in detail in a briefing paper Solving the Debt Service Crisis: Three Proposals, which can be found here.

DFI, NYU CIC Pathfinders, Oxfam and UNAIDS, has been going from strength to strength. The World Bank has already agreed to include the monitoring of the Gini coefficient in its corporate scorecard, through an indicator which will monitor whether it reduces the number of countries with very high inequality (a Gini of 0.4 or higher) from 52. The UN Inter-Agency Expert Group has also chosen the campaign’s suggestion of the Palma The campaign to Save SDG-10 by reinforcing the indicators used to monitor inequality, jointly chaired by DFI, NYU CIC Pathfinders, Oxfam and UNAIDS, has been going from strength to strength. The World Bank has already agreed to include the monitoring of the Gini coefficient in its corporate scorecard, through an indicator which will monitor whether it reduces the number of countries with very high inequality (a Gini of 0.4 or higher) from 52. The UN Inter-Agency Expert Group has also chosen the campaign’s suggestion of the Palma Ratio as one of 15 changes to the SDGs submitted to an open consultation which ended on August 15, and final decisions on whether it will be included will be made by October.

FES convened an informal “Chatham House rules” meeting on how to Fund the SDG Stimulus through Debt Relief. It was moderated by Navid Hanif, the Assistant Secretary General for Economic Development in UNDESA, the speakers were Matthew Martin of DFI and Betty Wainaina of UNY-CIC, and officials representing 15 PR offices attended. The meeting discussed how debt relief could fund the UN Secretary General’s proposals for the SDG Stimulus, which measures should be taken to achieve this via the G20 and UNFfD processes, and how these could be achieved over the next 16 months. Matthew's presentation is here.

FES and Jubilee USA organised a seminar with IMF and World Bank Executive Directors and senior staff in Washington DC, to discuss the recent set of studies on how to reform Debt Sustainability Analysis. The four studies are by Martin Guzman and Jo Stiglitz (The Practice of Sovereign DSAs), Gail Hurley (How Transparency Makes DSAs a Trusted and Effective Tool), Matthew Martin (How to Ensure DSAs Accelerate Sustainable Development) and Sherilynn Raga (An Appraisal of DSAs Amid Multiple Crises). Twenty-two Executive Board offices were represented. The Board members and staff generally received the studies very positively, and indicated that they will be valuable inputs to the current review of the LIC-DSF and any future review of the SRDSF. The four studies are published here.

Matthew Martin spoke in the plenary session on debt at the FFD Preparatory Conference for the FFD Summit to be held in 2025, held in Addis Ababa. His speech highlighted the depth and breadth of the worst ever debt crisis for countries of the global South, and made 5 practical recommendations from the July 2024  Norwegian Church Aid report  to help countries hit by natural disasters, lower-income and market-accessing countries to reduce their debt service burdens sharply during 2025-30; and to reform the Common Framework so that it targets a level of 10% external debt service/revenue from year 1 of a debt relief agreement. These practical steps could save US$847 billion a year for spending on the SDGs, 60% more than the amount the UN Secretary General requested to fund the SDG Stimulus.  In addition, to slow the next debt crisis, he proposed the adoption of a protocol to the UN Convention Against Corruption, preventing enforcement of predatory debt.

The two debt sustainability studies prepared by Gail Hurley and Matthew Martin for Friedrich Ebert Stiftung were discussed in a side-event on Debt Sustainability Assessments and their Role in the International Financial Architecture at the Addis Ababa FSD Prepcon on 23 July. Very useful comments were provided by Robert Powell, IMF Representative to the UN in New York; Volker Hey of the BMZ; Patricia Miranda of LATINDADD; and the South African Ambassador to the UN in New York, Mathu Joyini. The studies were well received, and the ensuing discussion focussed on how to make debt sustainability assessments more SDG-linked and transparent, and use them to help return countries’ debt service to sustainable levels.  The two studies are available here.