A global debt crisis is looming – how can we prevent it?

While the Covid-19 pandemic rages, more than 100 low- and middle-income countries will still have to pay a combined $130bn in debt service this year – around half of which is owed to private creditors. With much economic activity suspended and fiscal revenues in free fall, many countries will be forced to default. Others will cobble together scarce resources to pay creditors, cutting back on much-needed health and social expenditures. Still others will resort to additional borrowing, kicking the proverbial can down the road, seemingly easier now because of the flood of liquidity from central banks around the world.

From Latin America’s lost decade in the 1980s to the more recent Greek crisis, there are plenty of painful reminders of what happens when countries cannot service their debts. A global debt crisis today will push millions of people into unemployment and fuel instability and violence around the world. Many will seek jobs abroad, potentially overwhelming border-control and immigration systems in Europe and North America. Another costly migration crisis will divert attention away from the urgent need to address climate change. Such humanitarian emergencies are becoming the new norm.

This nightmare scenario is avoidable if we act now.