Following the Fourth International Conference on Financing for Development in June, we reached a breakthrough moment. Governments, international financial institutions, and civil-society organisations, recognising the need to tackle today's debt and development crises, are ready for action ahead of the United Nations General Assembly (UNGA) in September.
Recent reports that we each co-authored -- Healthy Debt on a Healthy Planet, the Jubilee Report, and the Report of the UN Secretary-General's Expert Group on Debt -- along with many other experts' work, have definitively established the severity and urgency of these intertwined crises and their devastating consequences.
In 2024, developing countries paid US$25 billion more to external creditors than they received in new disbursements. That means 3.4 billion people -- or more than 40% of the world's population -- live in countries that spend more on interest payments than on health or education.
Not only do many recognise the severity and urgency of the problem, they also agree on how we got here. The global financial system is not designed to meet the needs of people and the planet. Given historical inequities and low bargaining power, developing countries consistently face high borrowing costs and uneven incidence of prudential regulation. Without measures to ensure transparency, accountability, and strategic investment planning, borrowing and lending policies have failed to mobilise the productive investments that drive sustainable growth. Moreover, capital flows are highly volatile, with money flooding into developing countries during booms and flooding out in the wake of shocks. Meanwhile, the laws and policies governing debt restructurings have long encouraged delay, not resolution.
The situation has only worsened in recent years. In response to Covid-19, the countries that could afford to spend huge amounts to support their citizens did so, but the lack of a global safety net meant that developing countries could do nothing of the kind. While new allocations of the International Monetary Fund (IMF)'s Special Drawing Rights (the IMF's reserve asset) helped somewhat, they were insufficient.
Moreover, recent efforts to address debt distress, such as the G20 Common Framework, have fallen drastically short. Restructurings continue to move slowly and remain opaque, with outcomes largely determined by differentials in bargaining power between countries and their creditors. And restructuring now requires coordination among a wider array of players -- including the Paris Club of sovereign creditors, newer bilateral lenders like China, and ever more private creditors. This makes restructuring processes even more complicated. Even when relief comes, it often arrives too late and achieves too little.
Given the complexity of the crisis, there is no silver bullet. But nor are we at any loss for effective, practical solutions. To attack root causes, we should accelerate efforts to reform how the World Bank and IMF conduct debt-sustainability analyses. The current approach is not inclusive, does not account fully for climate- and nature-related risks, and does not consider the use of funds. Addressing these and other issues might seem technical, but the impact would be significant. For too long, flawed frameworks have held back the kind of productive borrowing that is needed to improve human capital, increase infrastructure investment, and strengthen climate resilience.
At the same time, there is a strong case for creating new structures and institutions, starting with a Borrowers' Club. Since lenders have been coordinating for decades, borrowers can hope to compete only if they do the same. Such coordination would enhance their collective bargaining power and ensure that their interests are considered. It could also provide a platform for everything from South-South learning to technical assistance and enhanced debt management.
Past attempts at coordination among borrowers have featured a lack of resolve. But there is new momentum. We now need to move forward by establishing shared strategic goals, a governance structure, and adequate funding.
To improve the restructuring process, we also need to change the incentives for both creditors and debtors. One option is to incorporate into the common framework automatic debt-service standstills for countries that face unsustainable debt burdens. The IMF could also use its policy of lending into arrears to guarantee that multilateral financing serves its purpose, rather than being used for repayment of distressed bonds that need to be restructured. It makes no economic sense -- nor is it just -- that after a devastating hurricane, scarce funds flow to remote creditors instead of to those who urgently need food and shelter.
Reforming the legislation that governs restructurings to deter holdouts must be high on the common agenda. That includes changing the "compensatory" pre-judgement interest rate in New York State for debts in arrears, which has been fixed at 9% since 1981 (when inflation was 8.9%), and introducing caps on recovery. It is no mystery why creditors do not currently rush to the negotiating table.
Across these key solutions -- reforming debt-sustainability analyses, establishing a Borrowers' Club, and improving the time and depth of restructuring -- what matters as much as the idea is the strength of the commitment to it. In 2000, efforts by a powerful global coalition helped to deliver significant relief for low-income countries. But today's reality demands that we adopt much broader and deeper reforms to solve the immediate crisis affecting low-income countries, and many middle-income countries as well, prevent future crises, and promote growth, job creation, and prosperity. As we look towards the UNGA in September, we should be focused on driving progress on these practical solutions. ©2025 Project Syndicate
MartÃn Guzmán, a former minister of economy of Argentina, is a professor at the School of International and Public Affairs at Columbia University. Mahmoud Mohieldin, UN Special Envoy on Financing the 2030 Sustainable Development Agenda and Co-Chair of the Expert Group on Debt, is a former minister of investment of Egypt (2004-10). Vera Songwe, is Founder and Chair of the Liquidity and Sustainability Facility and Co-Chair of the Expert Review on Debt, Nature, and Climate.
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