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. A wall of Covid-era, low-cost external borrowing is coming due just as global borrowing costs have skyrocketed. Meanwhile, sources of affordable financing have evaporated.
In the status quo, international financial institutions have been an essential lifeline. But while the IMF and MDBs have provided countries with enough to avoid widespread default, they have stopped short of what is needed to get countries back to the growth or enable them to rebuild resilience. And since G20 creditors have continued to pull money out, much of the new multilateral funds have effectively gone back out the door to pay back creditors. China, for example, shifted from a net provider of finance to a net extractor over the last decade. As post-Covid debts mature, a record share of poor countries net-repaid the IMF in 2026 – a drain set to widen by 2030.
Absent action, around 40 of the world’s poorest countries will face a stark choice: make further sharp cuts to spending at significant cost to growth and human lives, or finance government deficits and debt rollovers through exorbitant private borrowing that is likely to lead to eventual default. Both roads lead to crisis: debt-to-GDP will spiral upwards because growth is falling, because debts are rising, or both. Living standards stay stagnant and social unrest keeps rising.
The IMF itself has recognized this problem. IMF Managing Director Kristalina Georgieva recently told G20 finance ministers that “high refinancing needs and rising debt-service costs are constraining many developing economies… limiting their capacity to finance critical spending on infrastructure, health, and education, which undermines growth and, in turn, debt sustainability.”
Counterintuitively, for most countries, drawing a line under this crisis doesn’t require a debt initiative. It requires a growth initiative.
Long overdue improvements to the debt restructuring process remain crucially important for the handful of countries that need debt stock reduction. But more than 40 countries currently struggling with financing and liquidity challenges do not have debt stocks that require imminent restructuring.
Rather than waiting until they need a restructuring, we need a new toolkit that restores sustainability through dedicated support for growth.
We need a reset that replaces a piecemeal drip of financing with a coordinated and decisive surge. We need creditor countries to recognize that supporting this surge – rather than using it to exit – is in their interest: that growth is the surest way to get repaid. And we need support for countries to ensure that future private debts are spent on growth enhancing investments, more transparently managed, and less shock prone. The Rockefeller Foundation has just published a policy proposal – developed in partnership with leading experts – that details how a Growth and Investment Reset could work.
The Reset is not fundamentally a question of money but of political will. Resources already positioned at international financial institutions, combined with innovative financing mechanisms developed over the past five years, mean that this Reset could cost donors very little – a small fraction of the large-scale restructuring that will ultimately be needed if we don’t act.
As finance leaders meet in Bangkok, they should urgently discuss how to end the cycle of dependency. High-ambition leaders building a new model of development deserve a high-ambition international financial system with the capacity to enable them to get there.
The window is still open. But it is closing rapidly.
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