Debt is meant to help: you borrow to build roads, schools, hospitals, and growth repays. But since 2022, the movement has reversed. Developing countries now pay their creditors more than they receive, and the service of their debt crowds out health and education, without these peoples having overspent. How did a promise of development become a chain?
1 The trap shut
First, the reversal.
The shift
When aid flows backward
Between 2022 and 2024, developing countries paid their creditors $741 billion more than they received in new financing, the largest gap in at least fifty years (World Bank). The direction of the flow has reversed: the South now finances the North. In 2024, these countries paid a record $921 billion in interest, and 3.4 billion people live in countries that spend more on interest than on health or education.
Net transfer
−$741 bn
paid above what was received, 2022-2024 (World Bank).
Interest paid
$921 bn
in 2024, +10% in a year (UNCTAD).
The paradox
And here is the anomaly: it is not the most indebted who break. Japan owes two and a half times its GDP, the United States and France more than their annual wealth, and they hold. A poor country, by contrast, can default at 60 or 80% of its GDP. The difference is not the size of the debt, but its cost and its currency. We will return to this.
2 Heal or repay
For debt is not paid with nothing.
The trade-off
The hospital or the creditor
When interest swells, it eats the budget. In the recent period, 45 developing countries spend more on the interest of their debt than on health, and 22 more than on education (UNCTAD). In Africa, 57% of the population lives in such countries. According to Development Finance International, debt service there is now 2.7 times education spending and 4.2 times health. Nearly 400 million children live in debt-distressed countries (UNICEF).
More interest than health
45 countries
in the developing world (UNCTAD, 2025).
Service vs education (Africa)
×2.7
debt service exceeds education (DFI).
What is not built
Every dollar of interest is a dollar that will not go to a teacher, a vaccine, a road. The UNCTAD estimates that by borrowing at rich-country rates, the South would save $500 billion a year, enough to fund 375,000 schools. The crowding-out is no accounting abstraction: it is a classroom without a teacher, a clinic without medicine.
3 The human face
Behind the ratios, lives.
The cases
When debt takes to the streets
Sri Lanka defaulted in 2022, the first in its history, and underwent one of the most brutal austerities ever measured: poverty surged, and 1,489 doctors emigrated in two years. In Kenya, the 2024 finance bill, demanded to secure an IMF loan, triggered protests crushed in blood, at least 39 dead. In Pakistan, debt service absorbs 81% of federal tax revenue. Everywhere, the same fact: these populations did not overspend.
Sri Lanka
1,489 doctors
emigrated in two years after the 2022 default.
Pakistan
81%
of federal tax revenue to debt service.
Imported austerity
The cure often worsens the ill. To obtain a loan, a country pledges to cut. ActionAid has calculated that the IMF's austerity advice erased nearly $10 billion of public payroll in fifteen countries, more than three million essential jobs, teachers and health workers foremost.
4 Original sin
What remains is the asymmetry at the start.
The mechanism
Why Japan holds and the poor country breaks
The key is one word: the currency. Rich countries borrow in their own currency, at low rates, Japan around 2%, France 3.5%, the United States 4.4%, with a central bank ready to support them and domestic creditors (Japan holds its debt nearly 90% internally). Developing countries, by contrast, suffer from what economists Eichengreen and Hausmann named "original sin": unable to borrow in their currency, they take on dollar debt, at 8 or 10%, two to four times dearer than an American.
Japan's debt
≈ 240%
of GDP, and yet no crisis.
A poor country's rate
2 to 4 ×
higher than the United States (UNCTAD).
The double blow
Indebted in a foreign currency, a country takes two hits when its currency depreciates: the debt weighs more, and the rates demanded rise. It is not the size of the debt that condemns, but borrowing in other people's currency. Even rich countries feel it on a smaller scale: France's debt charge, about €60 billion a year, already nears the national education budget.
5 The infernal cycle
Once the machine starts, it sustains itself.
The loop
New debt pays off the old
The trap closes in a circle: you lend "to help"; the project poorly funds its own debt; a rate or currency shock hits; you must reborrow, dearer, to repay the old; and service crowds out the social. The 1980s already showed it, with Latin America's "lost decade." The Heavily Indebted Poor Countries initiative erased $54 billion of debt, but many re-indebted: Zambia, relieved, quadrupled its debt before defaulting in 2020.
Cancelled (HIPC initiative)
$54 bn
for some thirty heavily indebted poor countries.
Common Framework delay
2 yrs 8 mo
on average to restructure a debt (G20).
The role of ratings and China
Rating agencies worsen the cycle: they downgrade when the country most needs credit, raising the cost of market access at the worst moment. And China, the South's largest bilateral lender in the 2010s, has become a collector: its net flows to developing countries have turned negative.
6 The financial slave
We must then name what this cycle produces.
The servitude
"Each of us becomes the financial slave"
In 1987, before the Organisation of African Unity, Thomas Sankara denounced a debt "controlled, dominated by imperialism," "a cleverly organized reconquest" that makes "each of us become the financial slave." Three months later, he was assassinated. The anthropologist David Graeber showed why this servitude is so effective: to reframe a power relation in the language of debt is to make the victim the guilty party, the one who "owes" and would fail a moral duty by not paying.
Sankara's speech
29 Jul. 1987
OAU summit, Addis Ababa.
South → North transfer
−$25 bn
in 2023, a "topsy-turvy world" (UNCTAD).
The white-collar chain
Domination no longer wears the colonist's uniform, but the banker's suit. The UNCTAD itself titled a note "Topsy-Turvy World: Net Transfer of Resources from Poor to Rich Countries." Modern servitude is invisible: it is written in lines of debt service, in contracts governed by the law of New York or London.
7 Odious debt?
Hence a troubling question: who owes, exactly?
Legitimacy
Must one pay a debt contracted against oneself?
In 1927, the jurist Alexander Sack formulated the doctrine of "odious debt": a debt contracted by a regime without the people's consent, against their interest, and with the creditor's knowledge, should not bind that people. It was invoked for Iraq after Saddam Hussein, for Ecuador after a 2008 audit, for South Africa's apartheid debt. Each time, the same unease: must a people repay what was borrowed in its name but against it?
Sack's three criteria
①
Without consent. The debt is contracted by an unrepresentative power, without the population's assent.
②
Without benefit. The funds served against the people's interest, sometimes for weapons or embezzlement.
③
With the creditor's knowledge. The lender knew, or could not ignore, what the money would serve.
A doctrine debated, not enshrined
Let us be rigorous: odious debt is not recognized in positive international law, and no country has had it enshrined by a court. But it poses the right moral question: does a dictator's signature bind his victims? The case is still settled by politics, not by law.
8 Breaking the chain
How, then, to get out, without naivety?
The ways out
From the biblical jubilee to the Pope's report
The idea of erasing debts is ancient: the biblical jubilee remitted debts every fifty years. The Jubilee 2000 campaign won about a hundred billion in cancellations. In June 2025, a report commissioned by Pope Francis and chaired by Nobel laureate Joseph Stiglitz proposed a bankruptcy mechanism for states, an end to public bailouts of private creditors, and reform of the New York and London laws that govern these debts.
The rigor of the counterpoint
①
Debt is not bad in itself. Well used, it builds roads and schools. Even the Pope's report does not call for outright cancellation, but for orderly restructuring.
②
Responsibility is shared. The Mozambique "tuna bonds" scandal, two billion of hidden debt, mixes internal corruption and banking complicity (Credit Suisse fined). Not everything is the creditors' fault.
③
Cancellation has a cost. Erasing without conditions creates a moral hazard and may close off future access to credit. The debate pits relief against discipline.
Tools, still too slow
Solutions exist: clauses suspending service after a disaster, reallocation of the IMF's special drawing rights, orderly restructuring. But the G20 Common Framework has handled only four countries in five years. Will is lacking more than instruments.
9 What debt devours
What remains is to measure what is at stake.
The shadow side
When aid ceases to help
The crowding-out has a name and a price. Public interest payments in developing countries rose 102% in a decade, while their revenues grew only 39%. The money flowing out in debt service funds neither the investment nor the human capital that alone would one day allow repayment without impoverishment. The debt meant to help ends up devouring what it was to nourish.
The compass
①
For the investor. A smoldering sovereign risk: a "maturity wall" to refinance by 2026, serial defaults since 2020, and a risk premium that feeds itself.
②
For the citizen. The question is not "must one repay," but "at what human price." When debt service closes a school, aid has become its opposite.
③
Clear-sightedness. Tell the debt that builds from the debt that enslaves; and remember that the terms, currency and rate, matter more than the amount.
A debt paid in lives
Sankara put it bluntly: "if we pay, it is we who will die." The phrase is excessive, but it hits home. When repaying costs more than healing and teaching, debt has ceased to be a tool of development and become a chain. The real question is no longer accounting: it is how many lives a signature is worth.
Reference: abbreviations & acronyms used ($bn, GDP, IMF, HIPC, SDR).