Debt is a critical component of a country’s public finances. When acquired and managed responsibly, debt can be an important part of a country’s economy and fiscal health. It can be used to finance the
development of new infrastructure that improves people’s lives and increases economic output. During times of crisis, such as the COVID-19 pandemic, debt can finance economic stabilization and recovery efforts, such as stimulus payments to citizens or companies. Debt can also be used for emergency procurement of medical goods and other items.
However, when governments capture debt for private interests, use it to sustain corrupt practices,
mismanage it, hide it from the public eye, use it to fund “white elephant” projects with little to no value for people and the common good, or take on more than what they can sustainably repay, it can have disastrous effects on the economy. In such situations, people’s daily lives are also impacted as governments are forced to slash social spending to cover repayment. The international debt burden has reached unprecedented levels in recent years, according to the UN Global Crisis Response Group (2023), as “today, 3.3 billion people live in countries that spend more on interest payments than on education or health” (p. 4). This exacts a particularly high toll on women, youth and other vulnerable groups.
How debt is contracted and managed also has tremendous implications for democratic governance.
Transparency is a first key step in ensuring that lending does not fuel corruption and that decisions are
made to benefit the larger public. Oversight and accountability actors (parliaments, audit institutions, civil
society) play a pivotal role in monitoring debt; however, they are often left out of the decision-making about why loans are taken on, their terms and conditions, the policy choices the government is making to repay these loans, and how money is being spent. To reduce the negative impact of debt, borrowing countries and lenders need to ramp up transparency standards and be held accountable for how they implement them.
