Developing countries face rising debt costs as Labour targets G20 action
The article argues that bond market turmoil is putting the greatest strain on heavily indebted developing countries, which have little influence over global investors but face rising borrowing costs. Labour says it will use Britain’s G20 presidency next year to put unsustainable debt on the agenda and pursue international action.
The pressure has intensified amid the Middle East war and higher energy costs, while countries also need to fund climate adaptation. Before the latest market shifts, debt payments took 45% of government revenue across the global south and 70% in low-income countries. Labour points to the debt relief secured for more than 30 countries under Gordon Brown and Tony Blair in 2005, while acknowledging that today many debts are owed to private creditors and the countries needing support are harder to define.
- Bond market turmoil is hitting heavily indebted developing countries hardest.
- Debt servicing took 70% of low-income countries’ revenue before recent turmoil.
- Labour plans to raise unsustainable debt during the UK’s G20 presidency.
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Many developing countries are struggling to pay their debts as borrowing costs rise. When these countries need to borrow money, they sell bonds (essentially loans from investors) but must offer higher interest rates to attract buyers. This means debt payments now consume about 45 per cent of government revenue across the global south, leaving less money for schools, hospitals and other essential services.
Recent global financial turmoil has intensified the problem. Wars in the Middle East, higher energy costs and the need for countries to invest in climate adaptation have all strained government budgets. Developing countries have little influence over the global investors whose decisions determine borrowing costs, making them especially vulnerable to market swings.
The UK government, which will hold the presidency of the G20 group of major economies next year, plans to push for international action on unsustainable debt. A previous debt relief initiative in 2005 involved cancelling money owed to governments and international institutions, but today most developing country debt is owed to private investors, making solutions more complicated.
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The case for
Those supporting international debt action argue that heavily indebted developing countries face unsustainable burdens largely caused by external shocks beyond their control—global market turmoil, energy price spikes, and geopolitical crises. When debt servicing consumes 45 to 70 per cent of government revenue, countries cannot invest adequately in development, healthcare, education, or climate adaptation, perpetuating poverty and limiting global stability. They contend that coordinated international action, as demonstrated by successful debt relief in 2005, can unlock resources for genuine development whilst establishing a precedent that global financial systems should not punish countries disproportionately for circumstances beyond their influence.
The case against
Those sceptical of broad debt relief emphasise that much developing country debt is owed to private creditors who made investment decisions based on expected returns, and forgiving these debts effectively transfers losses to investors, creating moral hazard that discourages future lending. They argue that countries facing debt crises often bear responsibility through fiscal mismanagement or corruption, and that automatic relief removes crucial incentives for improved governance and budgetary discipline. Furthermore, developing countries' circumstances vary dramatically, making blanket international action inappropriate; creditor bases are now highly diverse and fragmented, complicating coordinated solutions and making private sector buy-in difficult to achieve.
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Originally published by The Guardian as “Labour has got the message – poorer nations suffer most from bond market turmoil | Heather Stewart”.