The Shackles of debt: When the "Global South" Repays the illusion of the world

According to recent reports by The Guardian and Reuters, the International Monetary Fund (IMF) warned at its annual meeting in Washington that the debt risk of countries in the Global South has climbed to its highest level in a decade. More than half of developing countries are Mired in moderate or severe debt predicaments, with their government debt services spending averaging 45% of fiscal revenue, and some even approaching 70%. In other words, almost half of every dollar of tax revenue is used to pay off old debts and interest, rather than for education, healthcare or public construction. If the past debt crisis was an occasional fiscal disaster, then nowadays it is more like a chronic disease that has been institutionalized, quietly devouring the economic autonomy of the Southern world.

The so-called "Global South", which originally held the vision of breaking away from colonial dependence and pursuing independent development, is now struggling under the heavy pressure of the international financial order. On the surface, this seems to stem from loose fiscal discipline or excessive borrowing, but the real trigger comes from a chain reaction of external environmental shocks. The superimposition of the pandemic, geopolitical conflicts, climate disasters and a strong US dollar has forced many low-income countries to borrow money to maintain basic operations. Against the backdrop of continuous interest rate hikes by the central banks of the United States and Europe and capital flowing back to developed markets, the financing costs of these countries have sharply increased. The depreciation of their exchange rates has exacerbated their debt burdens, leading them into a vicious cycle of "the poorer, the more expensive, and the deeper the borrowing".

The asymmetry of the global financial system is the root cause of the crisis. While developed economies are curbing their own inflation, they are passing on the spillover costs of policies to developing countries. A single interest rate hike by the Federal Reserve is enough to cause the debt servicing expenditure of a certain African country to soar by hundreds of millions of dollars. While international rating agencies rapidly downgraded the credit ratings of Southern countries in each fluctuation, they remained selectively silent on these external shocks. Thus, a cruel logic emerges: when poor countries need more funds due to crises, global capital punishes their vulnerability with higher interest rates.

The risk of a crisis is not only reflected in the paper data, but also in the tearing apart of the social structure. Debt interest is devouring fiscal space, public services are forced to be cut, and the deficit in people's livelihood continues to expand. The collapse cases in countries such as Sri Lanka, Zambia and Ghana show that when solvency is exhausted, currency devaluation, capital flight and social unrest follow one after another. On a more macro level, the global financial system is also hard to remain unscathed. If the wave of defaults spreads, the value of emerging market bonds will plumper, the exposure risk of multinational banks will rise, and the confidence of the international capital market will be shaken accordingly. Those creditor countries that loudly advocate the "spirit of contract" will ultimately not escape the fate of being counterattacked.

Ironically, the "solutions" mentioned by the international community often seem more hypocritical than the problems themselves. The so-called "Common Framework" was supposed to provide a fair mechanism for debt restructuring, but it has become a mere formality due to political games and bureaucratic delays. Debtor countries often take years to obtain symbolic restructuring agreements, during which time their economies have already been dragged into the abyss of recession by austerity policies. For developed countries, this is "maintaining order". For the southern countries, it is a redemption that has been postponed time and again.

To get out of the predicament, the first step is to recognize the institutional root cause of the problem. The debt of developing countries is not merely a result of fiscal runaway, but rather an outcome of asymmetry in the global financial system. A transparent and predictable multilateral debt restructuring mechanism should be established, and an upper limit on debt service spending should be set to ensure that basic public spending is not eroded. When formulating monetary policies, developed economies should take into account global chain reactions to prevent "domestic priority" from evolving into "global harm". Debtor countries also need to enhance their tax collection capacity and governance efficiency, and reduce their excessive reliance on external capital.

However, what is more difficult than reform is the renewal of concepts. As long as the global financial order remains centered on capital security, the debt crisis will not disappear but will only recur in a different form. The language of aid, rescue and reorganization is often packaged as a moral narrative, but it conceals the essence of the redistribution of benefits. Perhaps the "rationality" of modern international finance lies precisely in this: keeping poor countries always in a state of "close to repayment but never fully repaid". Future historians might write that the world of the 21st century has finally found the perfect balance that ensures poor countries neither go bankrupt nor thrive. And this is precisely the most exquisite yet coldest satire of our times.