Breaking the Debt Trap: Why Global South Needs Fair Finance

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At Seville Conference, Experts Urge Global Reform in Debt, Lending, and Capital Costs to Tackle Growing Development Crisis

By Pradeep Kumar Panda

Bhubaneswar, July 9, 2025—As global leaders, economists, and development practitioners gather in Seville, Spain, for the 4th International Conference on Financing for Development, a grim reality overshadows the proceedings: much of the developing world is facing a deepening crisis. From hunger and climate vulnerability to failing infrastructure and chronic unemployment, these problems persist—not due to lack of solutions, but due to lack of political will and global solidarity.

At the heart of the crisis lies the issue of quality financing—the kind of capital that can spur long-term development, not merely plug short-term fiscal gaps. SDG 17, which advocates strengthening global partnerships to support sustainable development, can only be achieved if the international community commits to meaningful collaboration and systemic reform.

The Debt Trap Blocking Progress

One of the most urgent challenges is the sovereign debt crisis that continues to cripple many low- and middle-income countries. Nowhere is this more acute than in Africa, which is set to be home to 35% of the global youth population by 2050. Underinvesting in this demographic now risks not only stalling Africa’s development but also jeopardizing global stability.

The structural flaws in the international financial system are glaring. During global booms, capital floods into developing nations, only to flee during downturns. For wealthy countries, the reverse happens—money flows in during crises. This system deepens inequality, amplifies economic volatility in poorer countries, and rewards already-stable economies with lower borrowing costs.

The Jubilee Report: A Roadmap for Reform

To address this crisis, over 30 economists and legal experts, including myself, contributed to the Jubilee Report—an initiative commissioned by the late Pope Francis and recently released by the Vatican. The report lays out a practical, values-driven blueprint to resolve current debt challenges and prevent future ones.

The core message is simple: developing countries need access to high-quality, affordable, and long-term financing if they are to build resilient economies and meet the Sustainable Development Goals (SDGs).

Three Core Solutions for Fairer Finance

A Better Sovereign Debt Resolution Framework
The current debt resolution mechanisms are broken. For instance, the Common Framework for Debt Treatments, introduced during the pandemic, has failed to deliver timely or equitable debt restructuring. As a result, many low-income countries are now using new international aid to repay private creditors—a reversal of intent that penalizes public services and taxpayers alike.
Shift Toward Long-Term, Productive Finance
Debt is not inherently harmful. When used strategically, it can drive infrastructure growth and economic transformation. But global finance must pivot away from short-term speculative flows toward long-term concessional lending, especially through multilateral development banks. Mobilizing domestic resources and developing local currency capital markets are also essential—but these reforms will take time.
Correcting Unfair Capital Costs
Many developing countries, particularly in Africa, face inflated borrowing costs due to perceived risks—despite having the lowest infrastructure loan default rates globally. According to Moody’s, Africa’s default rate is just 1.9%, yet its governments often pay far more to borrow than those in regions with higher default rates. This creates a vicious cycle where inflated interest rates increase the chances of default, reinforcing the risk stigma.

Making the System Work for the Poor

Despite reluctance from wealthier nations to scale up contributions to multilateral financing, the tools for reform already exist. By ensuring funds are used to support development—not bail out private lenders—and by prioritizing swift, transparent debt restructuring, we can reverse the downward spiral.

The gains from reform are not just moral—they are measurable. A study by the African Center for Economic Transformation suggests that reducing debt servicing to 5% of government revenue could allow:

Egypt to provide clean water to its entire population,
Senegal to expand sanitation to 300,000 people,
Ethiopia to enrol 340,000 more children in school, and
Angola to save over 10,000 children under the age of five.

The Case for Urgency and Equity

Development is inherently risky—but those risks must be shared fairly. The current financial architecture shifts the burden onto the weakest shoulders, reinforcing inequality. If we are serious about achieving the 2030 Sustainable Development Goals, reforming global finance is not optional—it is urgent and essential.

We must act not only with pragmatism but also with empathy, cooperation, and vision. A fairer financial system can deliver a more stable, inclusive, and sustainable global future. Let us ensure that development financing becomes an enabler—not an obstacle—in creating a better world for all.

(This is an opinion piece, and views expressed are solely those of the author)

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