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Debt crisis hits new highs in developing nations, relief deal needed, says UN

South Africa cholera outbreak re-ignites anger over poor services
February 25, 2025

By Duncan Miriri and Karin Strohecker

CAPE TOWN (Reuters) - The debt crisis facing the world's poorest economies is reaching new highs and debt servicing is eating up a growing share of revenues at the expense of spending on development, the United Nations Development Programme warned on Tuesday.

A new multilateral debt relief deal that includes all creditors "warrants serious attention", UNDP said in a policy paper.

Interest payments on debt exceeded 10% of government revenue in 56 developing nations - almost twice the number of countries compared to a decade ago, according to the UNDP report published as G20 finance ministers and central bank governors kick off their meeting in South Africa.

Of those, 17 countries spent more than 20% of revenue on interest payments - surpassing a threshold strongly linked to default risk, UNDP said. Rising debt service burdens had surpassed levels not seen in more than two decades, it said.

"The debt-development trade-offs threaten a lost decade of development progress for many of the world's poorest nations," said UNDP Administrator Achim Steiner.

The external debt of the 31 poorest countries at high risk of debt distress was just over $200 billion, equivalent to less than a third of the 2021 allocation of IMF special drawing rights, an international reserve currency, which chiefly went to rich nations.

As part of the 2021 allocation, wealthy countries agreed to rechannel some of their unused SDRs back to the IMF so the Fund could lend them at below-market rates to low-income countries.

A new relief deal - if roughly modelled on the average 60% debt stock reduction achieved through the Highly Indebted Poor Countries initiative launched nearly three decades ago - could save those 31 poorest countries nearly $80 billion, UNDP calculated. This would rise to $100 billion if the repayment period was extended by another seven years.

(Reporting by Duncan Miriri and Karin Strohecker; Editing by Ros Russell)

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