The global debt crisis jeopardizes global economic stability. The combination of expansionary fiscal policies and inefficient tax structures exacerbated by monetary policy issues and high interest rates has led to a massive increase in government borrowing. The results are resounding: job loss, currency depreciation, financial market instability and worsening poverty.
How did we get here?
The era of low interest rates encouraged many countries to borrow excessively, and some were hit by natural disasters as well. As a result, many of the poorest countries are now paying back their original debts several times over in the form of sky-high interest payments. This means that they cannot fund essential services, tackle the climate emergency and reduce poverty. This is wrong. Paying debts should never be put ahead of funding vital public services or improving the lives of citizens.
Debt repayments are eating up too much of the income needed for investments in education, research and development. This stifles growth and reduces future competitiveness, limiting the economy’s ability to recover from shocks.
Bringing debt-to-GDP levels down to the estimated “prudent” range will require discipline. But a gradual approach that focuses on improving spending efficiency rather than drastic cuts can reduce negative impacts on social services and growth while still allowing governments to meet pressing needs. At the same time, international cooperation to alleviate fiscal imbalances and foster long-term recovery will be crucial.