The Age of Universal Debt

Debt is no longer a phase of development. It is the operating system of the global economy. In 2026, public debt levels are high across almost every income group. The difference is no longer who borrows, but who issues the currency in which that borrowing is denominated.

Climate volatility, ageing populations, and higher capital costs have rendered legacy debt frameworks obsolete. Instruments built for temporary shocks now confront permanent stress. Calls for selective debt cancellation reflect arithmetic, not ideology. Where debt service crowds out climate adaptation and social stability, repayment becomes incompatible with development.

Absent reform, countries adjust through currency weakness and wage compression. The system holds, but it does not improve.

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The Universal Condition

According to the International Monetary Fund, global public debt exceeded $100 trillion for the first time in 2024, reaching $102 trillion. This represents 92.3 percent of global GDP, with projections indicating the ratio will approach 100 percent by the decade's end. The figure may well be higher because of chronic underestimation of debt projections and large spending pressures that remain unaccounted for in current forecasts.

What distinguishes the current moment from past debt cycles is universality. High debt levels now span almost every income group. Advanced economies, emerging markets, and low-income countries all operate with elevated public debt ratios. Japan's debt exceeds 230 percent of GDP. The United States carries $38 trillion in federal debt. Greece maintains 147 percent debt to GDP despite years of austerity.

The critical variable is not debt level but monetary sovereignty. Countries that issue debt in currencies they control (the dollar, euro, yen, pound) can manage elevated ratios through inflation or extended maturities. Countries that borrow in foreign currencies face external constraints. They cannot inflate away obligations denominated in dollars or euros. They adjust through real wages, subsidy cuts, and currency depreciation.

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The Asymmetry: Growth Rates and Burdens

The asymmetry is structural. Developing country public debt has grown 3.8 times since 2010, compared to 1.7 times for developed economies, according to UNCTAD. Yet developing countries account for only 30 percent of global public debt. The burden lies not in stock but in flow. Net interest payments for developing countries reached $921 billion in 2024, a 10 percent increase from 2023. In contrast, the United States paid $1.1 trillion in interest in 2024, equivalent to 12 percent of government revenues, a manageable share for the world's reserve currency issuer.

A record 61 developing countries allocated 10 percent or more of government revenues to interest payments in 2024, according to the United Nations Conference on Trade and Development. For comparison, developed economies rarely exceed 8 percent. The difference reflects borrowing costs. Frontier markets pay 8 to 15 percent on new issuance. Investment-grade developed economies borrow at 2 to 5 percent. The arithmetic compounds: higher rates on growing stock produce escalating interest burdens that crowd out other spending.

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The Crowding Out: Debt versus Development

Approximately 3.4 billion people, nearly half of humanity, now live in countries that spend more on interest payments than on education or health, according to United Nations data. This is not a localized phenomenon. It spans Africa, where interest spending exceeds both education and health budgets; Latin America, where interest surpasses public investment; and Asia and Oceania (excluding China), where interest payments exceed health expenditures.

The pattern is most acute in least developed countries. Between 2010 and 2024, the number of LDCs allocating 10 percent or more of government revenues to interest rose from 6 to 19 countries. Over the same period, net interest payments grew three to five times faster than spending on education or health. The divergence is structural. As debt stock accumulates and interest rates rise, debt service absorbs an escalating share of budgets, leaving less for essential services and capital formation.

In small island developing states, 10 countries devoted more than 10 percent of public revenues to interest in 2024, including Barbados, the Bahamas, Fiji, Jamaica, and Saint Lucia, which allocated 15 percent or more. For these nations, climate adaptation spending competes directly with debt service. A dollar paid to bondholders cannot be spent on seawalls, water infrastructure, or renewable energy transition.

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The External Drain: Net Resource Outflows

Between 2022 and 2024, developing countries paid out $741 billion more in principal and interest on external debt than they received in new financing, the largest gap in at least 50 years, according to the World Bank. This represents a net resource transfer from poor to rich. Capital flows in reverse. Instead of external financing supporting development, developing countries subsidize creditors in advanced economies.

The World Bank reports that developing countries spent a record $1.4 trillion servicing foreign debt in 2023, with interest costs surging by nearly one-third to $406 billion. For the poorest countries eligible to borrow from the International Development Association, debt service reached $96.2 billion in 2023. Although principal repayments decreased by nearly 8 percent to $61.6 billion, interest costs hit an all-time high of $34.6 billion, four times the amount paid a decade ago.

On average, interest payments of IDA countries now amount to nearly 6 percent of export earnings, a level not seen since 1999. This constrains import capacity, reduces foreign reserves, and limits fiscal space. Half of all developing countries paid at least 6.5 percent of export revenues to service external public debt in 2023. The constraint is binding: countries cannot simultaneously service debt, import essential goods, and maintain adequate reserves.

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The Climate Incompatibility

Climate adaptation and mitigation require fiscal space. According to the Institute of International Finance, if emissions reduction targets are fully met, climate and nature-related spending for net-zero goals could add an additional $38 trillion to government debt by 2028. This is not optional spending. It is mandatory adaptation to physical reality.

Countries facing both high debt service and escalating climate costs confront an impossible trade-off. A government paying 15 percent of revenues in interest has less capacity to build flood defenses, upgrade water systems, or transition energy infrastructure. Small island developing states illustrate the bind. Rising sea levels and intensifying cyclones demand immediate capital expenditure. Yet these same countries allocate 10 to 15 percent of revenues to debt service, crowding out adaptation spending.

The International Monetary Fund projects that government debt levels will climb more than one-third by 2028, nearing $130 trillion. If climate-related spending is added, the figure increases substantially. Legacy debt frameworks assume stable environmental conditions and predictable fiscal baselines. Neither assumption holds. Climate volatility produces revenue shocks (droughts reduce agricultural exports, floods destroy infrastructure) while simultaneously increasing expenditure needs (disaster response, reconstruction, adaptation).

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The Reform Arithmetic

Debt cancellation is not ideology; it is arithmetic. When debt service exceeds the capacity to finance development and climate adaptation simultaneously, repayment becomes unsustainable. The question is not whether reform occurs but when and under what terms. Orderly restructuring preserves economic function. Disorderly default destroys it.

The 2020 Debt Service Suspension Initiative provided temporary relief but no structural solution. The G20 Common Framework for debt treatment has produced limited results. Of the countries that applied (Chad, Ethiopia, Zambia), only Zambia reached a tentative deal, and it took three years. The coordination problem between official bilateral creditors (China, France), multilateral institutions (World Bank, IMF), and private bondholders remains unresolved.

Debt-for-climate swaps offer a targeted mechanism. A creditor forgoes repayment on part or all of a loan, converting debt payments into available capital earmarked for climate or health spending. The mechanism requires efficient coordination between creditors and debtor countries, and must be tailored for specific contexts. To date, implementation has been limited. Coordination costs are high, and creditors lack incentives to participate at scale.

Without structural reform, countries adjust through the mechanisms available: currency depreciation, wage compression, subsidy cuts, and deferred public investment. These adjustments maintain debt service but degrade development capacity. Real wages decline. Infrastructure deteriorates. Human capital formation stalls. The debt is serviced, but the economy does not grow.

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The Permanent Condition

Debt is no longer cyclical. It is structural. The distinction matters. Cyclical debt responds to growth; structural debt persists regardless of growth. When interest payments grow faster than revenues, when debt service exceeds essential spending, when net resource flows reverse from inward to outward, debt transitions from temporary leverage to permanent constraint.

Advanced economies with monetary sovereignty manage elevated debt ratios through extended maturities and controlled inflation. Japan operates with 230 percent debt to GDP because it borrows in yen at near-zero rates. The United States carries $38 trillion in federal debt because it issues the global reserve currency. These countries face fiscal constraints but not solvency crises.

Developing countries lack this insulation. They borrow in currencies they do not control, at rates they do not set, under terms they do not negotiate. When debt service exceeds 10 percent of revenues, when interest costs surpass health or education spending, when net resource transfers turn negative, the operating space for development policy narrows to a corridor. Countries can service debt or invest in development, but not both simultaneously.

The age of universal debt is not a crisis. It is a condition. The system functions. Debt is serviced. Markets remain liquid. Countries do not default en masse. What does not occur is development at the pace required to meet climate targets, close infrastructure gaps, or achieve social stability. The debt is permanent. The development is deferred.