Based on reports from mid-2025, the statement that almost all major world
nations are in a debt trap and unable to pay even the interest is an
exaggeration, but it reflects a crisis concentrated in developing economies
and growing risks in some advanced countries.
The situation is more nuanced: a large number of developing countries face
a severe debt crisis, while major world economies, including the U.S. and
some European nations, face rising debt burdens and refinancing risks.
Key facts as of mid-2025
Severe debt trap for many developing nations
: Global public debt hit a record $102 trillion in 2024. While developing
countries hold about a third ($31 trillion) of this debt, their public debt
has grown twice as fast as richer nations since 2010.: Developing countries
paid a record $921 billion in net interest in 2024. For 61 of these
nations, more than 10% of government revenue goes solely to interest
payments.: Around 4 billion people live in countries that spend more on
interest payments than on essential services like health or education. : In
2023, developing countries paid out $25 billion more in debt servicing to
external creditors than they received in new loans, creating a net outflow
of resources. : In mid-2024, the World Bank and IMF reported that 36
low-income countries were at high risk of debt distress, with 11 already in
severe distress. Notable countries experiencing debt crises or heightened risk
include Ghana, Pakistan, Egypt, Kenya, and Sri Lanka.
While major economies are not in a debt trap in the same way
developing nations are, many face significant fiscal challenges from high
debt loads and rising interest rates. : The IMF reported in April 2025 that
several developed nations have exceptionally high debt-to-GDP ratios,
including Japan (235%), Italy (137%), the U.S. (123%), and France (116%). :
Rising interest rates mean that interest payments are becoming a more
significant budget item for developed economies. In 2024, aggregate
interest payments for OECD countries were higher than their combined
defense spending. : A large portion of sovereign and corporate debt is set
to mature in the next three years, forcing governments and companies to
refinance at higher, more costly rates. : Events in France in 2025, for
example, highlighted how political instability can exacerbate debt
concerns. Higher-than-EU-mandated deficit levels have drawn investor
scrutiny and could be worsened by political fragmentation.
The debt issue is a global crisis of unequal impact. The core of
the issue is not that "almost all major nations" are in a debt trap, but
that the debt crisis has created a two-tiered system:
For developing countries, it is a full-blown crisis where billions live in
a state of debt distress, with crippling interest payments that starve
funding for social services.
For developed nations, it is a mounting risk. While their robust economies
and stable currencies offer greater resilience, rising debt levels and
interest costs are beginning to strain budgets and carry systemic risks
that could eventually threaten global financial stability.
When a country defaults on its debt, it fails to pay back its
creditors, leading to severe economic consequences such as a loss of
international creditworthiness, a lower credit rating, and a sharp rise in
borrowing costs for the government and businesses. This often triggers a
recession, currency devaluation, higher inflation, and a banking crisis as
investors and citizens lose confidence in the economy. The country also
suffers a loss of reputation, making it harder and more expensive to borrow
money for years to come.
The country becomes a risky borrower, leading to difficulty
securing future loans from international markets. Interest rates on new
and existing debt skyrocket, placing a significant burden on the government
and businesses. Domestic demand falls as investors withdraw money, and the
cost of goods increases due to currency devaluation and broader economic
instability. Banks may face write-downs on their holdings of sovereign
bonds, and the national currency can lose value against others, further
fueling inflation. The financial sector experiences instability as
confidence erodes and investors pull their money out of the market. The
country's international standing takes a hit, impacting its ability to
participate in global financial systems for an extended period. A
defaulting country may have to approach the International Monetary Fund
(IMF) for financial assistance in the form of bailout packages. Ordinary
citizens often suffer as they struggle to access their bank accounts,
experience late or bounced paychecks, and face higher prices for goods and
services.
KR IRS 91025
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