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Witnessing yet another wave of the debt crisis

The world is facing a "fifth wave of debt crisis," World Bank President David Malpass warned, calling for more support for countries in distress. Debt distress occurs when a country is unable to fulfil its financial obligations, such as repayments due on its debt. The IMF and World Bank believe 60% of low-income countries are at or near this point. The pandemic forced many countries to take on more borrowing, and the World Bank and International Monetary Fund (IMF) have warned that many are already facing or at risk of debt distress amid soaring global inflation and rising interest rates. It's a difficult time for the world economy, which is grappling with surging inflation and rising interest rates that threaten to ripple around the globe and derail nascent recoveries.Developing countries also need more capital flows, and although the World Bank is expanding help for countries.

Over the past fifty years, there have been four waves of debt buildup in the global economy. Financial crises in numerous developing and emerging market economies marked the end of the first three. The increase in debt in these economies during the current wave, which began in 2010, has already been greater, faster, and more widespread than during the preceding three waves. Some of the hazards related to excessive debt appear to be mitigated by the current low interest rates, which the markets anticipate being low over the medium term. However, limited development prospects, growing vulnerabilities, and increased global dangers are also a problem for emerging market and developing countries. There is a range of policy alternatives available to lessen the risk that the current debt wave will lead to crises and, if crises do occur, to prevent them.

Global debt passed $300 trillion in 2021, the Institute of International Finance says.

This covers borrowing by governments, businesses and households, and the International Monetary Fund warns that it is at dangerously high levels. Low-income countries and households suffer the most from high debt levels, experts warn. Borrowing was already surging before the pandemic, but COVID-19 and now the war in Ukraine have pushed global debt to new highs.

In 2021, the countries with the highest global debt levels compared to GDP were Japan (257%), Sudan (210%), Greece (207%), Eritrea (175%) and Cape Verde (161%), according to data published by Visual Capitalist.(See the graphics below)

Countries need to work together to tackle this debt mountain in order to safeguard global stability and prosperity, the IMF warned.When low-income countries get into debt distress, it’s associated with “protracted recessions, high inflation and fewer resources going to essential sectors like health, education and social safety nets, with a disproportionate impact on the poor,” the World Bank says.

Although its effects were slightly delayed, the financial and economic crisis had a significant influence on developing nations. There were several issues that each nation had to deal with. The consequences are worse the more integrated the developing nations are into the global economy. Additionally, the apparent early signs of recovery are currently limited to a small number of nations and areas.

The crisis, which sent millions back into poverty, was mostly spread through trade and financial activities. In many nations, the Millennium Development Goals' achievement is gravely in jeopardy. Many developing nations lacked and now lack the financial means to safeguard their socially vulnerable citizens and boost economic growth to the same degree as industrialised nations. However, a lot of nations have worked hard to lessen the effects. Additionally, developing nations are now working more closely together and pressing for a bigger say in world economic issues.

Most of the time, the industrialised nations are more focused on their own issues. They are just partially willing to offer more extensive assistance. International organisations are pressuring them to relinquish their historical hegemony in favour of the more powerful rising nations. Before the financial crisis, there was a clear shift in power and influence, and this movement is now getting worse.

In low and middle-income countries, this crisis comes at a time of rising concern for the sustainability of public debt, especially external debt. Since the Global Financial Crisis of 2008-09, monetary policies in developed nations have pushed commercial lending towards so-called “frontier” markets. At the same time, some official lenders emerged with ambitious agendas to expand their markets, often linked to infrastructure investment. For those emerging actors, terms were often more expensive than the usual concessional rates of multilateral banks and “traditional” bilateral donors.

Because of this, debt service increased, limiting the government's ability to respond to the economic and social disaster and to stop the virus from spreading. Why is a debt moratorium necessary in addition to other measures to improve well-being and economic expansion? Recent trends in debt accumulation for low-income nations have produced vulnerabilities that precede the COVID-19 issue. The South Asian nations with the greatest effects on the global financial crisis were India and Sri Lanka. They originally reacted to the supply shock with a combination of fiscal and monetary policies in try to mitigate the consequences and promote economic growth. Bangladesh and Sri Lanka used more focused, narrower fiscal stimulus policies, whilst India launched more comprehensive fiscal stimulus policies to support

Many poor countries face major economic disruption and a possible default on their sovereign debt in 2022. This is an offspring of the pandemic. COVID-19 may have started as a global health crisis, but it soon became a global economic crisis. And it won’t be long before it mutates once again into a global political crisis. Even before the pandemic, people were taking to the streets from Ecuador to Egypt to Eswatini to protest high prices and rising inequality. Social distancing temporarily suppressed such protests. But there is every expectation they will return with a vengeance, as the source of the grievances—inequality—has only worsened in the wake of the COVID-19 pandemic, particularly in low-income countries that didn’t have the luxury of borrowing at cheap rates to fund major fiscal stimulus packages to cushion the economic impact.

Meanwhile, many lower-income economies that are heavily dependent on exports have been struck particularly hard by disrupted supply chains and, for those that are not oil-dependent, by the price of crude. Governments in need of money during the pandemic sought out pricey short-term emergency loans from China, the International Monetary Fund, or private lenders. However, the most urgent improvement is that the common framework must incorporate all creditors, including China and the private sector. All should expect to take a hit and absorb some losses, given that they all took risks that were clearly out of step with reality.

Beyond the immediate debt crisis, we must also ensure that international financial institutions are both transformed and funded to match the scale of the global challenges the world faces. Real reform may have to await the easing of global political tensions, but the agenda is already clear.Some steps could be as follows :

First, the multilateral banks, with the support of shareholders, need to dramatically increase how much they can lend. Current capacity amounts to around a quarter of a trillion dollars, but experts estimate that they need to be capable of lending at least $1.3 trillion per year.

Second, with greater resources must come greater accountability. Such undemocratic control undermines these banks’ credibility and capability to serve the countries that need them most. Wealthy countries should agree to a dual voting system to blend the shareholding structure of today with the one-country, one-vote system of more democratically governed institutions.

Third, the IMF could have a huge impact by extending its line of credit, known as Special Drawing Rights, more regularly. Last year, the IMF issued Special Drawing Rights worth $650 billion. We need to see the IMF extend credit on this scale every year, but we also need to see richer nations pass on their rights to claim these loans to low-income nations that are in desperate need of cheap loans that cannot be found from private creditors.

Fourth, international financial institutions need to take on a much bigger role in leveraging private finance. We need to find ways to bring in more private capital by providing public capital to make new investments less risky.

Given the international community's egregious failure to act cooperatively thus far, such comprehensive reforms may appear to be an impossible task. In the end, the political repercussions of inaction—possible street protests or riots—may now push even less globally aware politicians toward genuine reform in the near term to address both COVID-19 and its economic repercussions. And, in the long term, it could force a global reset that maybe, just maybe, could bring global multilateralism back to fight another day.

In economic terms, growth is low and inflation is high. In human terms, people’s incomes are less and hardship is more .The growing risk of fragmentation of the world economy into geopolitical blocs with different trade and technology standards, payment systems, and reserve currencies. Pragmatically,the Common Framework is the only game in town—and it can and must be improved in time to provide meaningful relief to countries that need it.

There is now a very real possibility that a crisis of this magnitude will quickly lead to political unrest. Helping nations restructure their debt as part of a larger refinancing of their economic destiny is an urgent subject for world leaders. Each nation should get together to discuss how they may all benefit from a global green prosperity. Today, when we face greater problems and harder decisions, we still need that spirit. The world's response to the debt crisis in developing economies has been too slow for too long, providing either too little or too late relief.It’s high time for a 21st-century approach—one that involves pre-emption rather than reaction and one that prevents the crisis from erupting in the first place.


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  2. “World Facing ‘5th Wave’ of Debt Crisis: World Bank Chief - Times of India.” The Times of India,

  3. “Unprecedented Shocks Rattle South Asia, Exacerbating Challenges and Dampening Growth.” World Bank,

  4. “Global Waves of Debt: Causes and Consequences.” World Bank,

  5. “Dangerous Global Debt Burden Requires Decisive Cooperation.” IMF, 11 Apr. 2022,

  6. Carrasco, Bruno, et al. “The Impact of the Global Crisis on South Asia.” Asian Development Bank, 2010,

  7. “The Debt Pandemic – IMF F&D.” IMF, 1 Sept. 2020,

  8. “The Aftermath of Sovereign Debt Crises.” CEPR, 20 July 2021,

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