Committee for the Abolition of Illegitimate Debt

These laudable aims have, like many UN initiatives in the 21^st century, proven unsustainable. As the world leaders pontificate this week in Seville, the reality is that the gap between the rich countries and the rest of the world has not closed – on the contrary it has widened. And instead of renewed efforts to boost funding for the so-called developing world, the opposite is happening. US President Trump has gutted the funding and personnel of the US development agency, USAID. USAID funding is expected to fall from $60bn in 2024 to less than $30bn in 2026. Germany, Britain and France, among other rich economies, are also making cuts in order to finance huge rises in arms spending for war.

The Group of Seven (G7) countries, which together account for around three-quarters of all official development assistance ODA
Official Development Assistance Official Development Assistance is the name given to loans granted in financially favourable conditions by the public bodies of the industrialized countries. A loan has only to be agreed at a lower rate of interest than going market rates (a concessionary loan) to be considered as aid, even if it is then repaid to the last cent by the borrowing country. Tied bilateral loans (which oblige the borrowing country to buy products or services from the lending country) and debt cancellation are also counted as part of ODA. Apart from food aid, there are three main ways of using these funds: rural development, infrastructures and non-project aid (financing budget deficits or the balance of payments). The latter increases continually. This aid is made “conditional” upon reduction of the public deficit, privatization, environmental “good behaviour”, care of the very poor, democratization, etc. These conditions are laid down by the main governments of the North, the World Bank and the IMF. The aid goes through three channels: multilateral aid, bilateral aid and the NGOs. (ODA), are set to slash their aid spending by 28 percent for 2026 compared to 2024 levels. This would be the biggest cut in aid since the G7 was established in 1975 and indeed in aid records going back to 1960.

Next year will mark the third consecutive year of decline in G7 aid spending – a trend not seen since the 1990s. If these cuts go ahead, G7 aid levels in 2026 will crash by $44 billion to just $112 billion. The cuts are being driven primarily by the US (down $33 billion), Germany (down $3.5 billion), the UK (down $5 billion) and France (down $3 billion).

The international charity Oxfam says the cuts to development aid are the largest since 1960 and the UN puts the growing gap between what is needed for sustainable development and what is delivered at $4 trillion. “The G7’s retreat from the world is unprecedented and couldn’t come at a worse time, with hunger, poverty, and climate harm intensifying. The G7 cannot claim to build bridges on one hand while tearing them down with the other. It sends a shameful message to the Global South, that G7 ideals of collaboration mean nothing,” said Oxfam International Executive Director Amitabh Behar.

Poor countries are not only getting less financial support; they are experiencing an ever-rising burden of debt owed to the rich countries’ banks and financial institutions. The total external debt of the group of the least developed countries Least Developed Countries
LDC A notion defined by the UN on the following criteria: low per capita income, poor human resources and little diversification in the economy. The list includes 49 countries at present, the most recent addition being Senegal in July 2000. 30 years ago there were only 25 LDC. has more than tripled in 15 years, according to the UN. Total debt in the so-called emerging economies (excluding China) has reached 126% of their GDPs. Total external debt stock Debt stock The total amount of debt of the poor countries hit at an all-time high of 8.8 trillion in 2023, up 2.4 percent from the previous year.

Debt repayments are now greater than new inflows of credit and capital. In 2023, low- and middle-income countries (excluding China) experienced a net outflow to the private sector of $30bn on long-term debt — a major drain on development. Since 2022, foreign private creditors have extracted nearly $141 billion more in debt service Debt service The sum of the interests and the amortization of the capital borrowed. payments from public sector borrowers in developing economies than they disbursed in new financing. For two years in a row now, the external creditors of developing economies have been pulling out more than they have been putting in.”

The total debt servicing costs (principal plus interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. payments) of all LMICs reached an all-time high of US$1.4 trillion in 2023. Excluding China, debt servicing costs climbed to a record of US$971 billion in 2023, an increase of 19.7 percent over the previous year and more than double the amounts seen a decade ago.

A recent report commissioned by the late Pope Francis and coordinated by ‘Nobel’ laureate economist Joseph Stiglitz reckons that 3.3 billion people live in countries that fork out more on interest payments than on health. Recent data from the UN’s trade and development body, UNCTAD, reveal that 54 countries spend over 10 percent of their tax revenues on interest payments alone. The average interest burden for developing countries, as a share Share A unit of ownership interest in a corporation or financial asset, representing one part of the total capital stock. Its owner (a shareholder) is entitled to receive an equal distribution of any profits distributed (a dividend) and to attend shareholder meetings. of tax revenues, has almost doubled since 2011. More than 3.3bn people live in countries that now spend more on debt service than on health, and 2.7bn in countries that spend more on debt than on education.

Global aid for nutrition will fall by 44 percent in 2025 compared to 2022: The end of just $128 million worth of US-funded child nutrition programs for a million children will result in an extra 163,500 child deaths a year. At the same time, 2.3 million children suffering from severe acute malnutrition – the most lethal form of undernutrition – are now at risk of losing their life-saving treatments. One in five dollars of aid to poor countries’ health budgets are to be cut or under threat: WHO reports that almost three-quarters of its country offices are seeing serious disruptions to health services, and in about a quarter of the countries where it operates some health facilities have already been forced to shut down completely. US aid cuts could lead to up to 3 million preventable deaths every year, with 95 million people losing access to healthcare. This includes children dying from vaccine-preventable diseases, pregnant women losing access to care, and rising deaths from malaria, TB, and HIV.

According to a new report by UNCTAD for the Seville conference, sectors critical to the Sustainable Development Goals suffered in particular from a drop in foreign investment. Investment flows to developing countries for infrastructure fell 35%, renewable energy 31%, water and sanitation 30% and agrifood systems 19%. Only the health sector saw growth. Projects rose by about one fifth in number and value, but total volumes remained small – under $15 billion.

Before the conference in Seville began, the US announced that it would not be attending or agreeing to any plan. So some governments made a declaration. They came up with a feeble proposal, not binding on them and with no justification for implementing it, namely that the various development banks around the world should triple their lending capacity, particularly for “essential social spending”. And there should be “more cooperation against tax evasion”. Some hope. In reality, loans and bonds to carry out sustainability goals have declined.

In a previous post, I showed that the countries of the so-called Global South are not ‘catching up’ with the rich imperialist countries of the so-called Global North, either in income per person, in productivity, or by any index of human development. At the same time, the huge inequalities of income and wealth, between and within countries, continue to worsen.

What is the answer? Not more loans from banks and governments at exorbitant and rising interest rates Interest rates When A lends money to B, B repays the amount lent by A (the capital) as well as a supplementary sum known as interest, so that A has an interest in agreeing to this financial operation. The interest is determined by the interest rate, which may be high or low. To take a very simple example: if A borrows 100 million dollars for 10 years at a fixed interest rate of 5%, the first year he will repay a tenth of the capital initially borrowed (10 million dollars) plus 5% of the capital owed, i.e. 5 million dollars, that is a total of 15 million dollars. In the second year, he will again repay 10% of the capital borrowed, but the 5% now only applies to the remaining 90 million dollars still due, i.e. 4.5 million dollars, or a total of 14.5 million dollars. And so on, until the tenth year when he will repay the last 10 million dollars, plus 5% of that remaining 10 million dollars, i.e. 0.5 million dollars, giving a total of 10.5 million dollars. Over 10 years, the total amount repaid will come to 127.5 million dollars. The repayment of the capital is not usually made in equal instalments. In the initial years, the repayment concerns mainly the interest, and the proportion of capital repaid increases over the years. In this case, if repayments are stopped, the capital still due is higher…

The nominal interest rate is the rate at which the loan is contracted. The real interest rate is the nominal rate reduced by the rate of inflation. (the UK or Germany borrows at 3 -4%, while developing countries are charged 6-8%), but instead the cancellation and writing off of existing debt burdens for poor countries (I don’t like the word debt ‘forgiveness’ as there is nothing to forgive).

And then what is needed is a global plan for public investment in the Global South aimed at infrastructure, health, education and public services, alongside support for employment-creating technologies and industries. This could easily be financed by the rich countries with a wealth tax on the very rich and by public ownership of the major banks and multinationals that currently dominate global finance. Of course, that won’t happen without revolutionary changes in the Global North.