The debt crisis won’t be solved by debt relief alone. Developing countries need a growth reset

Leaders like President Mahama of Ghana are building the architecture for a new kind of cooperation – a global reset anchored in country-led growth powered by domestic resources and private investment.

On its face, however, this inspirational message seems in sharp contrast to economic reality.

More than half of developing countries face liquidity and financing challenges that are making it difficult to finance basic expenditures, let alone the investment needed for growth.

As global borrowing costs soar, the current crisis of fiscal space and affordable financing risks morphing into a new wave of full-blown debt crises.

It is not hopeless.

Working together, the international financial institutions, borrower and creditor countries, and private actors have the power to prevent a wave of crises and enable countries that have ambitious investment and reform plans to pivot to a higher and sustained growth path.

As finance leaders gather in Bangkok for World Bank and IMF Annual Meetings, will they rise to meet the moment? Even before the latest spike in global borrowing costs, most developing countries faced unprecedented debt service burdens.

Following a series of global shocks, the average developing country now spends more than ten percent of its revenue on interest on debt, [nearly double the burden a decade ago], crowding out investment for growth.

In ten countries, interest payments eclipse the entire public investment budget.

Debt acts as a ceiling on private investment, further stifling growth.

The results are stark.

In the decade to 2015, real per capita incomes in Sub-Saharan Africa grew by about a fifth.

In the decade since, they haven’t grown at all.

This is about to get worse.