Developing countries are already in a debt crisis, even though few of them are defaulting, a senior official of the debt relief campaign Jubilee USA Network has told NewsGhana.
Aldo Caliari, Senior Director of Policy and Strategy at Jubilee USA, said governments were choosing to keep paying creditors at heavy cost to their own people rather than face a restructuring system he called inefficient and unpredictable. He gave his assessment in written answers to NewsGhana ahead of the International Monetary Fund (IMF) and World Bank Annual Meetings, which run in Bangkok from 12 to 18 October.
“We may not have a ‘debt crisis’ as scores of countries defaulting,” he said, “but we have something more serious: a social and development crisis.”
A crisis without defaults
Caliari said the average developing country now spends 45 percent of its revenue on debt payments, and that 75 countries spend more than a third. He said both figures were higher than in the 1990s, when the debt burden led to the Heavily Indebted Poor Countries initiative and the Multilateral Debt Relief Initiative.
For countries the IMF and World Bank judge to have a short-term cash squeeze rather than unpayable debt, the main tool is the “3-pillar approach” launched in 2024. It combines domestic reforms, more official lending and incentives for private creditors to keep lending, so that debtors can keep paying while their economies grow. Caliari said the approach works only if the institutions correctly identify which countries do not have a deeper problem, and only if the growth rates it assumes are achievable. “There is a big question mark on that,” he said.
He added that no public list exists of the countries eligible for the approach or using it, so its results cannot be judged. Jubilee expects progress in Bangkok on transparency and on clearer measures of success.
Senegal as the test case
For countries whose debt cannot be paid, Caliari said the G20 Common Framework had failed to provide timely or sufficient relief. He added that only a small share of the countries that arguably need a restructuring have applied for it. Chad, Ghana, Zambia and Ethiopia all went through the framework.
The G20 has since endorsed a Restructuring Playbook and a revised blueprint for agreements between debtors and creditors, both meant to make the framework faster and more transparent. Senegal will be the first country to go through the new process. On 1 September, Senegal reached a staff-level agreement with the IMF on a 36-month loan of about US$2.2 billion and said it would seek treatment under an enhanced version of the framework, keeping debt denominated in CFA francs outside the deal. Prime Minister Ahmadou Al Aminou Lo has told lawmakers the country will reprofile its debt rather than restructure it.
“The proof will be in the pudding,” Caliari said.
Vulture funds and New York
On private creditors, Caliari pointed to contract reforms that make it harder for a minority of creditors to block a deal, and to efforts to extend those rules from bonds to commercial bank loans.
He singled out New York’s champerty bill, which would stop investors who buy distressed sovereign debt cheaply and then sue for full repayment. New York law governs more than half of sovereign bonds. The state Senate passed the bill on 2 June, but its companion bill never reached the Assembly floor before the session ended. Caliari said the bill had enough votes to pass the Assembly had the Speaker allowed a vote. The Managed Funds Association and six other financial industry groups opposed it, arguing in a joint letter that it would raise borrowing costs for sovereign borrowers and drive debt issuance to rival financial centres.
More lending without new money
Caliari said the World Bank could lend significantly more. Its lending arm for middle-income countries, the International Bank for Reconstruction and Development, had lent more than US$800 billion since its founding on capital of less than US$20 billion, he said. He argued that its equity-to-loan ratio, above 21 percent last year, could safely fall to 18 percent or lower.
He said reforms to the International Development Association (IDA), the World Bank’s fund for the poorest countries, could expand its reach without new donor money. He named changes to the rules on when countries graduate out of IDA, transfers from the bank’s other lending arm and tools for mobilising private investment. He said higher donor contributions were still needed.
On Special Drawing Rights (SDRs), the IMF’s reserve asset, he said a new allocation was unlikely to win the necessary support. Because SDRs are shared out according to each country’s IMF quota, developing countries receive only about a third of any allocation. He saw more room in passing existing SDRs from rich countries to poorer ones through development banks, noting that the African Development Bank and the Inter-American Development Bank have led that effort.
Energy shock and El Niño
Caliari said developing countries face more than six months of high oil prices linked to the Middle East conflict. Even if conditions return to normal soon, he said, the recovery will trail by months. Scarce, expensive fertiliser is only beginning to feed through to food prices, and he warned it could combine with El Niño to push them up for at least the next three years.
He said the countries hit hardest would be those whose per capita income has barely moved in 15 years.
AI and what Africa should watch
On artificial intelligence, Caliari cited Pope Leo XIV’s encyclical Magnifica Humanitas, published in May. He said AI should remain a tool under human control, with the dignity of work put first. He said the IMF, World Bank and G20 could help through advice, training and financing, but nothing would replace country-owned development strategies.
He urged African governments to watch three things in Bangkok. The first is whether reforms to the IMF and World Bank debt sustainability framework for low-income countries give borrowers a bigger say in the assessments. The second is whether development banks increase concessional and emergency lending. The third is whether they steer private capital to the countries that need it most rather than to the easiest markets.
His longer-term priorities are a rapid solution to the current debt crisis, safeguards to prevent the next one, and a rules-based framework for resolving sovereign debt crises that works the way bankruptcy works within national economies.
The Governing Council of the Borrowers’ Platform, a United Nations-backed forum for debtor countries launched in April, will hold its first meeting in Bangkok.
