During her visit to the London School of Economics (LSE) in November 2008, Queen Elizabeth II famously asked the professors there about the global financial crisis, at its height at the time. Rightly describing the crisis as horrible, by saying “It’s awful — Why did nobody see it coming?”

The answers the queen received were brief, indicating that those in charge of managing the economy being so confident that they were performing their jobs to perfection, that they were taken by surprise when a crisis erupted and proved them catastrophically wrong.

The experts had failed to see the looming threat that excessive borrowing posed to the global economic system. Decision-makers could not see the full picture, and a full-blown crisis was the result. The world is still suffering the effects of the turmoil unleashed by the global financial crisis, which marked the beginning of the end of the post-World War II economic order.

Today, we are facing an even more serious financial crisis for the same reason – excessive levels of debt – and the countries of the Global South are the hardest hit.

If, for individuals, debt means “losing sleep at night and suffering humiliation during the day,” for states its impacts can be even more disastrous. It can wreak havoc on political and economic systems, jeopardise stability, imperil the future of national development, and undermine a nation’s autonomous decision-making.

These consequences have received the attention they deserve in various publications that are available to all those who are willing to learn from experience. US anthropologist David Graeber’s Debt: The First Five Thousand Years presents an encyclopaedic history of the impacts of debt on relations within society, exploitative practices, and the pursuit of justice, for example. It examines how religions, and religious canon and secular laws have attempted to regulate debt and how debt has affected economic and political relations between states and decisions regarding war and peace.

A recent report from the UN Trade and Development agency UNCTAD entitled “A World of Debt” is far from heartening, especially with regard to the prospects of the developing nations. According to the report, global public debt, which refers to general government domestic and external debt, had climbed to $97 trillion by 2024, an increase of nearly $6 trillion from the previous year, with the increase in the developing economies twice that of the developed.

The latter countries now account for 30 per cent of total global debt, compared to just 16 per cent in 2010. Although debt as a share of GDP (at market prices) has declined overall in the developing countries due to the growth of some of their economies in some cases and inflation in others. However, this is not the case for Africa where the debt-to-GDP ratio has risen sharply.

I hasten to add that this measure on its own can be very misleading for decision-makers. What counts is a government’s ability to service its debts with existing resources without detracting from development goals and disturbing the socioeconomic equilibrium.

Unfortunately, the debt-service figures in the UNCTAD report bring little comfort. For the developing countries, servicing external public debt relative to exports rose from 3.8 per cent in 2010 to 6.3 per cent in 2022. Servicing external public debt now eats up nearly nine per cent of government revenues, nearly double the level of five per cent in 2010. With the rise of the developing countries’ debt payments to $850 billion due to rising interest rates, one wonders who is really paying the cost of the debt.

To make matters worse, debt rescheduling has grown more complicated because of the increase in the number of private creditors vis-à-vis government creditors among lenders to the developing nations. The latter category includes the so-called Paris Club group of countries whose share as lenders to the developing nations fell from 39 per cent in 2000 to just 10 per cent in 2022.

In the absence of an equitable and efficient debt-resolution mechanism, many developing nations will sacrifice almost anything rather than reschedule their debts, so they have prioritised paying off debts over outlays on education, healthcare, and essential social services. While their annual per capita expenditures in Africa on education and healthcare are $39 and $60, respectively, their average debt-servicing expenditure comes to $70.

Despite these figures, there are still those who scratch their heads and wonder why less than 15 per cent of the UN Sustainable Development Goals (SDGs) are on track. I would wager that even those that are, will be derailed, due to debt, before the 2030 target date for achieving the SDGs.

Unlike the 2008 crisis that caused Queen Elizabeth to complain of economists’ apparent inability to see it coming, the current crisis was indeed predictable, yet it came anyway. The current generations in the developing world are paying the costs of it, and its consequences will be felt for generations to come.

I recently attended a conference on the debt crisis in the Global South hosted in the august halls of the Vatican on 5 June. The sessions brought together top economic experts, political officials, senior representatives from the UN and financing agencies, and representatives of civil society organisations. It opened with an audience with Pope Francis, who has long seen the problem of foreign debt not just as an economic problem, but also as a moral concern with major implications for people’s lives.

I will discuss some of the practical proposals that arose from the discussions in a forthcoming article.

This article also appears in Arabic in Wednesday’s edition of Asharq Al-Awsat.

* A version of this article appears in print in the 13 June, 2024 edition of Al-Ahram Weekly