N'DJAMENA, Chad – As everyone knows, the war in the Middle East has caused a sharp spike in oil, gas and food prices, creating severe economic hardship worldwide, and especially in developing countries. But less well understood is the war’s effect on government borrowing costs. Across the Global South, what began as a price shock has morphed into a debt shock.
The seeds of the current crisis were sown during the period of low interest rates in the 2010s, when low- and lower-middle-income countries borrowed heavily in dollars. Many invested these funds productively and reaped the rewards of stronger economic growth. But after the COVID-19 pandemic, global interest rates rose and the U.S. dollar strengthened, making borrowing significantly more expensive.
By 2023, developing countries’ combined external debt had reached $11.4 trillion, representing 99% of their entire export earnings. Total interest payments were 26% higher than they had been just two years earlier and an unprecedented 54 countries — nearly half of them in Africa — were committing at least 10% of their government budgets to interest payments. Last year, U.N. Trade and Development (UNCTAD) calculated that 3.3 billion people were living in countries that spent more on debt payments than on basic services such as health or education and the situation has only grown worse since then.
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