"Shouldn't all debts just be repaid?" Find out the answer to this, as well as other key questions about the new global debt crisis.
What is the new global debt crisis?
Many of the world’s poorest countries have been plunged into a new debt crisis. Despite facing significant poverty burdens, countries are having to make huge repayments on high-interest loans to wealthy banks, institutions and governments, leaving them unable to properly fund essential services. Often, the original debt has been repaid many times over but will never be cleared because the interest keeps on growing.
Why is CAFOD talking about debt right now?
Low-income countries have been facing increasingly unsustainable debt since the 2008 financial crisis, when banks, hedge funds and traders saw an opportunity to make vast sums of money by lending to them at high interest rates.
Almost half of the total external debt owed by lower-income countries is to these ‘private lenders’, including BlackRock and HSBC, who often lend recklessly, and with no accountability, and as a result make huge profits. This is causing more and more countries to fall into debt crisis. Today, there are 54 low-income countries facing unsustainable debt levels, up from 22 in 2015.
Wasn’t the problem of debt addressed by Jubilee 2000, 25 years ago?
CAFOD has campaigned against unjust debt for a long time. After decades of debt justice activism in the Global South, the late 1990s saw the issue of debt become a mainstream issue with the Jubilee 2000 movement.
Between 2000-2015 the global Jubilee campaign won $130 billion of debt cancellation for 36 lower-income countries, which on average reduced their debt by three quarters. In countries that had debts cancelled, children completing primary school increased from 45% in the 1980s-90s to 66% by 2012 as the money governments saved went into public services.
However, the scheme did not prevent debt crises recurring. Despite efforts by the Jubilee 2000 campaign, no new regulations were introduced to make lenders more responsible or transparent. The same structural causes that led to the crisis remain in place. That is why we need action now.
What is CAFOD calling for on the debt crisis?
The UK government has the power to do something about this. Incredibly, almost 90% of debt contracts of the poorest countries are governed by English law due to the pivotal role of the City of London in the global financial sector. This means the UK ultimately oversees how these debts are enforced and could introduce legislation to make private lenders take part in debt relief.
Currently, when a country requests debt cancellation because they are unable to meet repayments, other governments, and multilateral institutions like the World Bank and IMF, work with that country to find a way forward. But private lenders have not taken on the same responsibility, often holding out for maximum profit. They insist on repayments no matter the human cost.
The G20 group of countries has taken steps to address the debt crisis, but they haven't been effective. We need new legislation that would ensure fair and equal treatment for lenders so that countries’ debts are reduced in a more comprehensive way. As UK citizens, we can play a key role in pushing our government to pass this legislation.
Shouldn’t debts just be repaid?
Often, low-income countries have repaid their original debts but they're paying them several times over because of sky-high interest. The current system isn't working. We believe that paying debts should not be put ahead of funding vital public services or tackling the climate emergency. Doing so means debt payments to lenders are being prioritised over life itself.
Private lenders lent to lower income countries at high interest rates – around 6-10% - at a time when they were lending to governments like the US and UK at 0-1%. They supposedly charged these high interest rates because of the risk of not being paid. Therefore, the lenders were always aware that defaulting might be a risk.
Over recent years we have had a succession of shocks – the Covid pandemic, rising food and energy prices, rising global interest rates, and climate disasters. The risk has materialised, and so private lenders must be made to take part in debt relief. Otherwise they will make mass profits, while people in the affected countries will suffer from declining public services and economic stagnation.
How can we ensure that debt relief doesn’t enable corruption?
Existing structures are not providing solutions to corruption. Only under a more transparent and comprehensive global debt system can corruption be tackled. Developing a transparent global debt registry is one systemic change that would enable citizens to better hold borrowing governments to account.
History demonstrates that, overall, money gained from debt relief is not spent irresponsibly or illegitimately. Indeed, following the Jubilee 2000 campaign, in countries that had debts cancelled children completing primary school increased from 45 per cent to 66 per cent as the money saved on debt repayments went into public services.
More broadly, without global economic structures that enable low-income countries’ economic and political development – including the development of strong political institutions, economic growth, and investment in public services – tackling corruption is extremely difficult. Enabling long-term development by reforming global debt structures is therefore essential to global efforts to reduce corruption.
Won’t countries just get into debt crisis again if it’s cancelled?
Not if we reform the system to stop the cycle of debt crises from happening. We need clear legislation and a permanent global debt mechanism to ensure that debts are agreed transparently and that there is a functional relief and restructuring framework.
This will incentivise lenders to be more responsible with their loans, taking greater care over whether they can be repaid. A transparent register of loans would also help hold governments and lenders to account, and so make problem debts less likely to arise.
Beyond this, we need to tackle other underlying causes of lower income countries being so dependent on debt in the first place, such as tax avoidance and evasion, unfair trade rules, and the climate emergency.
Why did countries borrow money at such high interest rates?
Low-income countries borrowed at high interest rates due to aggressive lending practices following the 2008 financial crash, when private lenders saw an opportunity to make huge profits.
Decades of IMF and World Bank policies had opened these countries to risky international capital flows, leaving them vulnerable. Crises in the 2020s, including the Covid pandemic and rising global interest rates, exposed the fragility of these debts, forcing countries to borrow further at extortionate rates. The G20’s debt relief framework has largely failed due to private lenders' resistance, leaving countries trapped in unsustainable debt cycles.
What does the Church say about debt?
The Bible gives us a model of money lending which is about accompanying the vulnerable in order to help them, rather than to make profits:
“If you lend money to my people, to the poor among you, you shall not deal with them as a creditor; you shall not exact interest from them.” (Exodus 22:25)
Pope Francis has spoken repeatedly and clearly about this issue, calling for action in the Jubilee Year:
"I ask that affluent nations acknowledge the gravity of so many of their past decisions and determine to forgive the debts of countries that will never be able to repay them. More than a question of generosity, this is a matter of justice.”
Call for debt justice in the Jubilee Year
In the Jubilee Year 2025, people across the world are uniting in solidarity to demand action on the global debt crisis.