How It Started

• After World War II, newly independent countries in Africa, Asia, and Latin America borrowed heavily to finance infrastructure and development.

• In the 1970s, banks in rich countries had excess “petrodollars” (oil revenues) and lent them to developing nations at low interest rates.

• When interest rates rose sharply in the 1980s, many poor nations couldn’t keep up — this triggered the 1980s debt crisis.

Scale of the problem

• In 1980, developing countries owed roughly US $600 billion.

• By 2000, that had grown to US $2.5 trillion.

• In 2020, total external debt for low- and middle-income countries reached US $8.7 trillion.

• By 2024, it was estimated to be US $30 trillion+ if we include all developing and emerging markets.

Who are the lenders?

• Multilateral institutions: IMF, World Bank, African Development Bank, Asian Development Bank, etc.

• Bilateral creditors: Richer nations lending directly (e.g., China, U.S., Japan, France).

• Private creditors: Commercial banks, hedge funds, and bondholders.

Consequences

Rapid growth of debt means more budgetary pressure for many developing countries because they must service and repay the debt.

The rising debt levels are one factor undermining progress on development goals (health, education, infrastructure).

Slower growth of new debt does not mean reduction of burden — many countries still face high interest costs or unfavorable terms.

Sovereign (public) external debt → money borrowed by governments or guaranteed by them.

Private external debt → loans owed by private companies to foreign entities.

Sometimes, domestic (internal) debt is excluded — “Third World debt” generally means foreign obligations.

Debt drains money away from basic needs

• When a poor country owes billions in external debt, a huge share of its national budget goes to repaying interest and principal — often to wealthy countries, banks, or international institutions — instead of helping its people.
• Many developing nations spend more on debt service than on health and education combined.
• In 2024, over 50 low- and middle-income countries spent twice as much on debt payments as on healthcare.

• When a country can’t pay its debts, the IMF (International Monetary Fund) often steps in with “bailout” loans.
  But those loans come with conditions — known as Structural Adjustment Programs (SAPs) — that require:

  • Cutting government spending (including health, food, and education budgets)
  • Privatizing public services
  • Removing subsidies on food and fuel
  • Freezing public sector wages

  These austerity measures are meant to “stabilize” the economy — but in practice, they often hit the poorest the hardest.

Value kills the vulnerable

• High debt → less public investment → economic stagnation → poverty deepens.
• Poverty directly causes child malnutrition, stunting, and early death.
• In Malawi, debt repayments consume over 20% of government revenue — leaving only scraps for social welfare.
• In Haiti, over half of children are undernourished while the country continues to pay debts dating back to colonial “independence reparations”.

Health systems collapse under debt burden

• Debt repayments mean underfunded hospitals, no medicine, and fewer staff.
• In Sub-Saharan Africa, debt servicing costs outstrip health budgets in over 30 countries.
• Many hospitals cannot afford basic antibiotics or electricity because foreign currency is used to pay debt, not import supplies.
• COVID-19 showed this brutally: countries like Ghana, Kenya, and Sri Lanka couldn’t afford pandemic response because of debt constraints.
• UNICEF estimates that over 200,000 children could die in the next few years in countries forced into austerity-driven debt repayments.

What could stop this

• In poorer countries, governments often spend a large share of their budgets servicing debt instead of investing in human needs. For example: In 2021, poor countries spent on average 27.5% of their budgets on debt repayment — four times more than what they spent on health.
• At the same time, many governments did not raise taxes on excessive profits or wealth during crises (eg. the COVID‑19 pandemic), even as the poorest countries were forced to cut social spending. 
• The financial burden on poorer countries becomes heavy, leaving less room for the basic services (clean water, schools, healthcare) that save lives — particularly of children.

The juxtaposition of luxury and deprivation

• While multinational firms shift profits out of poorer countries and tax revenues evaporate, rich individuals and corporations continue to accumulate extreme wealth — owning luxury homes, private jets, yachts. Meanwhile, in the countries from where the resources/wealth were extracted, people still live in poverty.
• Corporate power “propels climate breakdown, which further exacerbates inequalities … the people in low‑income countries who produce the least climate pollution suffer the greatest the consequences.”
• This stark contrast — extravagance in some places, deprivation in others — isn’t just unfair, it is morally and socially destabilizing.

 Corporate tax avoidance & profit shifting

• Some of the world’s largest multinational corporations shift huge amounts of their profits into tax havens — on the order of US $1 trillion annually in profits shifted, with hundreds of billions lost in tax revenue.
• One estimate: lower‑income countries lose nearly 20 percentage points more of their corporate tax revenue (as a share of their corporate tax base) than high‑income countries because of profit shifting.
• According to Oxfam International, tax dodging by the wealthy and corporations costs poor countries at least US $100 billion each year — money that could fund education or health for millions.
• For example: In 2012, it was reported that U.S. multinationals declared US $80 billion of profits in Bermuda (a tax haven) — more than they declared in Japan, China, Germany and France combined.
• When governments in poorer countries lose tax revenue, they have less money for hospitals, schools, social protection, infrastructure. That directly hurts people — especially the most vulnerable.

Wealth concentration & exploitation of systems

• Corporate monopolies and massive wealth are increasingly aligned with global poverty: one analysis noted that since 2020 billionaires’ wealth increased by about US $3.3 trillion, mostly concentrated in the global North, while poverty in many places deepened.
• These same corporations often influence or shape policy — opposing labour protections, resisting tax reforms, benefitting from systemic advantages.
• Huge wealth for a few while systems favor them means fewer opportunities, more inequality, and structural barriers for those in poorer countries.

 Real human consequences

• When tax revenues decline and public services are under‑funded, children and mothers pay the price. For instance: the lost tax revenue in developing countries is “enough money to provide an education for 124 million children and prevent the deaths of almost eight million mothers, babies and children a year.”
• Because of structural inequalities, labour abuses, low wages and weak regulation in many poorer countries persist — allowing profits to be generated on the backs of vulnerable people.
• This isn’t abstract. It means kids dying, families struggling, communities left behind — while elsewhere luxury escalates.