Daily Hot Topic

Topic : Global Public Debt at a Record High

Global public debt reached a historic peak of $97 trillion in 2023 (UNCTAD report).
This is a significant increase from 2022, highlighting a growing burden on global prosperity.

The number of African countries with high debt-to-GDP ratios (above 60%) has risen sharply (from 6 to 27) between 2013 and 2023.
Developing nations face a double whammy:
- Increased Interest Payments: They paid a staggering $847 billion in net interest in 2023, a 26% rise from 2021.
- Crowding Out Essential Spending: In 3.3 billion people’s countries, interest payments exceed spending on education and health combined.
The share of public debt held by developing countries has climbed to 30% globally (2023), compared to 16% in 2010.
Reliance on private creditors has increased, making debt restructuring more complex.

India’s debt-to-GDP ratio has fluctuated but remains high (around 81% in recent years).
The Fiscal Responsibility and Budget Management (FRBM) Act aimed to bring it down to 60% by 2024-25, but this target seems unlikely.
The IMF projects India’s debt could reach 100% of GDP under adverse circumstances by 2028.

Hinders Climate Action: Developing countries need to invest more in climate change solutions, but rising debt payments create a financial squeeze.
Debt Crises More Expensive: The growing complexity of creditors makes restructuring debt more difficult and costly.
Unequal Financial Architecture: Borrowing from private sources is expensive compared to concessional loans from multilateral institutions.
Cuts in Public Services: High debt can force governments to reduce spending on healthcare, education, and social welfare, worsening inequality.

The UNCTAD report urges revamping the global financial system to support the UN’s Sustainable Development Goals (SDGs).
Key proposals include:
- Greater Inclusion: Enhance developing country participation in global financial governance.
- Debt Management: Create effective mechanisms to tackle rising debt costs and prevent debt distress.
- Contingency Finance: Provide greater financial support during crises to avoid excessive borrowing.
- Scaling Up Financing: Mobilize resources from multilateral development banks and private investors for affordable, long-term financing.

Public debt is the total amount borrowed by the government to finance its development and operational needs.
It includes liabilities of both the central and state governments.
The Indian government categorizes its debt based on the source of funds (e.g., government securities, treasury bills, external loans).