A world of debt: A growing burden to global prosperity

Context

Recently a report titled “A world of debt: A growing burden to global prosperity”, highlighted the unprecedented surge in global public debt, which reached a historic peak of $97 trillion in 2023.

Key Highlights

• The range of African countries with debt-to-GDP ratios above 60% has accelerated from 6 to 27 between 2013 and 2023.
• In 2023, growing countries paid $847 billion in net interest, a 26% increase from 2021.
• The report revealed that 3.3 billion people are living in nations where interest rates exceed spending on education and health together.
• In 2023, public debt in growing nations hit $29 trillion, or about 30% of the total worldwide, an increase from a 16% share in 2010.
• Since 2010, the portion of external public debt owed to private lenders has risen across all regions, accounting for 61% of growing countries’ overall outside public debt in 2022.
• The “cascading crises” and the gradual and uneven overall performance of the global economy underpinned the rapid increase in global public debt, which is rising at twice the rate in developing countries than in richer ones.

Public debt of India

• India’s public debt-to-GDP ratio has slightly extended from 81% in 2005-06 to 84% in 2021-22, and is expected to return to 81% in 2022-23.
• As according to the Fiscal Responsibility and Budget Management (FRBM) Act 2003, the overall authorities debt changed into imagined to be brought right down to 60% of GDP by 2024-25.
• The IMF states that India’s fashionable authorities debt, along with the Centre and States, can be a hundred% of GDP below detrimental situations by fiscal 2028.
  • It has projected the ratio at 82.4% for 2024-25.
• Public Debt Management Cell: It was set up in 2015 as an intervening time association before setting up an impartial and statutory debt management organization particularly the Public Debt Management Agency (PDMA).

Concerns of growing debt

• Impact on climate movement: Developing countries need to grow climate investments from their current level of 2.1% of GDP to 6.9% by 2030 to satisfy the Paris Agreement goals. However, they are currently spending more on interest rates than on climate investments.
• Increase the value of resolving debt crises: The increasing complexity of the creditor base makes debt restructuring extra tough as it requires negotiating with a broader variety of lenders with diverging interests and legal frameworks.
• Inequalities within the worldwide economic structure: Borrowing from private resources on industrial terms is greater costly than concessional financing from multilateral and bilateral sources.
  • Countries with high debt reduce expenditure in public services such as healthcare, education, and social welfare. This can exacerbate poverty and inequality.

Call to action to finance sustainable development

• The file proposed a plan to revamp the worldwide monetary system and raise the UN’s Sustainable Development Goals (SDG) stimulus package to tackle the current debt disaster.
• These will entail efforts to:
  • Make the system greater inclusive: Improve the powerful participation of developing countries within the governance of global economic structures.
  • Tackle the growing value of debt and risk of debt distress by an effective debt workout mechanism.
  • Expand contingency finance to offer extra liquidity in times of disaster, so that nations are not pressured into debt as a last motel.
  • Massively scale up low-cost and long-time period financing by way of mobilizing multilateral development banks and private resources.

Source: UNCTAD

UPSC Mains Practice Question 

Q. Public expenditure management is a challenge to the Government of India in the context of budget-making during the post-liberalization period. Clarify it. (2019)

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