One of the most pressing issues discussed at the Seville Conference on Financing Sustainable Development last month was the international debt crisis afflicting many developing nations.
Half of all low-income countries suffer – or are at risk of – debt distress: the strain of debt obligations that exceed their financial capacities. Over the past seven years, the cost of servicing debt in emerging market countries has risen by over 12 per cent a year – more than double the average growth rate of their revenues from exports and remittances.
Today, more than 3.3 billion people live in countries that spend more on interest payments than they do on education or healthcare and, in many cases, more than both combined. What kind of future awaits such countries, which are struggling hard to avoid default on their external debt only to end up defaulting on development?
This painful irony has rightly been called the “silent crisis.” Desperate to conceal their financial strains, debtor countries slash public spending on key priorities in order to meet debt-servicing payments, for fear that revealing the true cost of the crisis would cut off their access to new loans, most of which go to repaying old ones.
Meanwhile, the creditors remain silent as long as they are paid on time. Even if payments are late, creditors take precautions to ensure the impact is minimal. From previous crises they have learned to inflate lending costs to compensate for what they assess might be even the remotest risk of default.
As a result of this syndrome – the debtors’ silence in order to be able to secure more loans and the creditors’ confidence that they have nothing to lose – net financial flows to the developing countries have turned negative. In 2024, these countries paid their creditors $25 billion more than they received.
Moreover, the debt-repayment challenges continue to grow, alongside the risk of default, due to rising financing costs, exchange-rate fluctuations, and a decline in average economic growth rates among developing countries over the past five years to around 3.7 per cent, the lowest rate in three decades.
As I explained in a previous article, lenders are well-organised and coordinate closely. Over the past seven decades, the Paris Club has evolved some of the best available arrangements for their purposes. Borrowers, on the other hand, have failed to establish a comparable framework to serve their interests, despite several attempts which were either actively obstructed or undermined from within by poor institutional coordination and lack of sufficient resolve.
Nevertheless, there have been renewed calls to form various types of borrowers’ associations. Two years ago, African countries were urged to establish a forum for coordination, information-sharing, and strengthening their bargaining power to secure better contractual terms. Such efforts are essential to counterbalancing international structures that have long favoured creditors – structures embedded in the international financial institutions whose capital assets and governance remain controlled by creditor states.
Other ideas for borrowers’ coalitions have proposed going beyond technical cooperation and information-sharing to collective borrowing. This suggestion, put forward by Development Reimagined, brings to mind the pioneering experience of the Grameen Bank in Bangladesh, which arranged microloans for low-income individuals by organising them into cohesive mutual support groups. The method reduced risks of default, thereby lowering borrowing costs.
Such collaborations also draw on Nobel Laureate economist Joseph Stiglitz’s concept of “peer monitoring.” Groups of borrowers in similar circumstances monitor each other’s financing, borrowing, and repayment behaviour to reduce risk of default and, hence, lower borrowing costs and improve the contractual terms of loans.
Although the idea has proven successful in meeting the financing needs of individuals, as the Grameen Bank model has exemplified, major obstacles arise when it comes to collective borrowing by sovereign states. Some might mention the European Union’s joint borrowing initiative after the Covid-19 crisis struck, enabling the issuance of €800 billion in bonds between 2021 and 2025 to finance recovery efforts. These bonds were backed by the EU budget, with agreed increases in revenue streams to ensure repayment by 2058.
However, such an idea is too ambitious for the current institutional arrangements and levels of cooperation within the membership of the African Union, which may evolve for more economic integration. But currently, the African countries still have a long way to go before attaining the modes of cooperation and degrees of economic and fiscal integration that would allow for collective borrowing through bonds or joint credit arrangements.
Still, half a loaf is better than none, as the saying goes. In this case, the half a loaf would be to start with the creation of a coalition, let’s call it the “South Club”, to serve as a platform for debtor countries, mirroring the Paris Club of creditor nations.
The “South Club” would not aim to confront the North or the West. It is important to bear in mind how much the debt landscape has changed. Bilateral loans from Paris Club countries no longer dominate this landscape in scale or impact, especially given the rising roles of private creditors, China and other high-income emerging economies are not members of the Paris Club.
The idea of a “South Club”, of debtor countries raises urgent questions regarding its priorities, founders, structure, governance, relations with international financial institutions and other international organisations, budget and where the budget would come from, guarantees of its success, and how its performance would be assessed.
These will be addressed 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 6 August, 2025 edition of Al-Ahram Weekly
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