By Max Lawson

Not just people, entire nations are facing a cost-of-living crisis

Spare a thought for the Finance Minister in his office in almost any of the world’s developing countries.  He (it is still almost always a he) is struggling with an economy still reeling from the battering of COVID-19. 

Meanwhile, the cost of food and oil imports has shot up.  Just keeping petrol in the pumps and food on the shelves is costing twice as much.

It is not just food and oil that have got more expensive.  The dollars needed to buy them have got more expensive themselves. It takes a lot more of local currency to buy the same amount of dollars compared to just a few months ago.

Dollars are not just needed to buy food, medicines, and oil; they are also needed to pay back debts that have been borrowed in dollars.  Many developing nations in recent years, have borrowed in dollars. 

The dollar is getting more expensive partly because the federal reserve is rapidly raising interest rates- a sharp increase 0.75% coming very soon. An average increase of 1% in the interest paid would add $35 billion to the debt payments of low- and middle-income countries.

When the Fed rapidly raised rates in the early 1980’s it led to a wave of defaults across the developing world, most famously Mexico in 1982.  The IMF reckons that 53 countries are in serious trouble debt wise; either with unsustainable debts or having defaulted already.

Sri Lanka is currently the most spectacular of these, with food and fuel shortages causing huge hardship and leading to a popular uprising against the regime.  For every spectacular default, and we can expect a significant number more in the coming months, there are many more countries that are squeezing everything they can from other spending to avoid defaulting.

Debts must be repaid at all costs

When you publish your budget as a finance minister, there are two types of spending, mandatory and then discretionary.  Debt repayments are mandatory, they come first.  Schools and hospitals are described as discretionary. 

Cuts in public spending hurt the poorest most.  The rich can insulate themselves from chaos, at least to some extent.  In this brilliant podcast about the situation in Sri Lanka, the commentator Indrajit Samarajiva describes this vividly.  The poor and those in the middle, living close to the breadline are the most impacted.

In some ways it is very similar to the situation with personal debts.  For every family that goes bankrupt and collapses under the pressure of what is owed, there are many more families making painful and silent sacrifices just to stay afloat. 

With families, the pain is of course also not felt equally.  It is the women in the family who often are the ones who must manage the squeeze in finances and make the biggest sacrifices. At times debts are taken on by the man of the house, to fund reckless expenditures, or to service gambling habits or drinking.  Yet it is his family who must pay.

Equally this is true for nations.  I saw it in Kenya, where the ruling elite were happy to borrow at high rates to finance huge white-elephant projects; the latest is the elevated expressway from the rich area of town out to the airport, which is a toll road only open to the rich.  Yet it is ordinary Kenyans, who will never get to sweep along in a big car above the traffic below, who will end up paying for this.

The new Kenya expressway, known as the ‘road of the rich’

Perhaps most egregiously, the poor citizens of today are asked to pay the debts run up by the terrible governments of yesterday.  The government of Nelson Mandela had to pay back all the debts run up by the Apartheid government, including those spent on the guns, tear gas and armoured vehicles used to crush the resistance of black people.

Debt as a way of extracting resources from the poor to the rich

Debt is ultimately a transfer of resources from borrower to lender, and as the borrower is almost always poorer than the lender, it tends towards increasing inequality.  This does not mean all debt is bad; it can be vital to help countries invest.  It is simply that the process of lending is by its nature a way of extracting value from borrowers, from work and income to the owners of capital.  From the tax workers pay, to the bank accounts of international lenders.

Debt is also often used as a means of control too.  In colonial times, the British were brilliant at using their lending to nations as a means of control, and a failure to pay up was often met with brutal military force. For example, the naval bombardment of Alexandria in Egypt, killing 10,000 people.

The ancient city of Alexandria, bombarded by British Warships for non-payment of debts

These days the gunboat is rarely used, instead the brutal rules of global finance do this just as effectively.  The cost of default, of being ostracised from markets and critically from the ability to continue to borrow, is so high, that governments will do anything to keep paying.  The International Monetary Fund plays a key role as a gatekeeper, insisting on often brutal cuts to public spending to secure its seal of approval, and with this the continued access to capital markets.

The critical role of private lenders

Lots of people in the western media like to blame reckless Chinese lending for this latest debt crisis.  Whilst China has lent more money to developing nations in recent years, most debts are owed to private creditors, often domiciled in New York or London. According to Debt Justice, of the external debt payments by low- and lower middle-income governments, 47% are to private lenders, 27% to multilateral institutions such as the World Bank and the IMF, 12% to China and 14% to governments other than China.

And whilst China agreed to take part in the suspension of debt repayments agreed by the G20 during the COVID-19 crisis, private lenders completely refused to do so, and got little more than a mild rebuke from the US and UK governments, despite their formal power to press them to participate.

For example, the huge financial investment fund, Blackrock, is one of Zambia’s biggest creditors.  It is led by the billionaire Larry Fink. Zambia is on its knees, spending more repaying debts than on health and education combined.  

This reverse flow, of money from poorer countries to private lenders and their rich shareholders in rich countries, is of course only a small part of the calculus.  Billions more are lost to tax dodging and what is known as illicit financial flows, money flowing out of developing countries into private hands in Switzerland or New York.

We are the creditors

And the historical debt of colonialism and neo-colonialism can itself be measured, as the active discussion of reparations demonstrates.  Trillions of dollars of wealth have been extracted from the developing world to fund the development of rich nations. One study calculated that Britain drained a total of nearly $45 trillion from India alone during the period 1765 to 1938. 

To this can be added the ecological debt.  This article in the New York Times about the wonderful Prime Minister of Barbados, Mia Mottley, and the plight of the Caribbean, whilst long, is an absolute must read (you can also listen to it too) as a background on the current debt crisis.  The Caribbean has the highest level of debt per capita of any region in the world- why?  Because in large part of hurricanes.  Jamaica is still struggling to pay back the debts for money it borrowed to rebuild following Hurricane Gilbert, over 30 years ago. And these are increasing in their frequency and their fury on an annual basis.

This is just one example of the huge ecological debt owed by the rich world to the poor world.  In getting rich, we have destroyed the environment, and driven climate breakdown.

No wonder this debt has rightly been called illegitimate. I remember going on a march in at the World Social Forum in 2003 with allies from Jubilee South, and they were all chanting ‘we are the creditors’ and how that really made me think.  Developing nations, and their ordinary citizens are truly the creditors. Rich nations, and particularly rich people in rich nations, are the debtors; they owe a huge historical and current debt to the rest of the world. And they should pay up.

Author: Max Lawson is the Head of Inequality Policy at Oxfam International & EQUALS Podcast co-host. He also Co-Chairs the global People’s Vaccine Alliance.

Image credits

  1. low res. outside the treasury front of bollards” by WDM Manchester is licensed under CC BY-NC-SA 2.0.
  2. Nairobi Expressway, “Road of the Rich”. Source:
  3. Ancient City of Alexandria. Source:
  4. “Larry Fink, Blackrock CEO – Cancel Zambia’s Debt”. Source:
  5. “Cancel Illegitimate Debt”. Source: