Financing the Right to Health: How the Global Debt Crisis Impacts Global Health

*Editor's note: This blog is the second in a series addressing the global debt crisis. Read the first here.

In today's world, money and power are tightly intertwined. Many low- and middle-income countries around the globe lack the monetary resources they need to build robust education, health care, and infrastructure systems, harming their ability to determine the direction of their development.  

But why is it that so many countries have limited resources? And why are national governments turning to Partners In Health (PIH) for support in building and reinforcing public health care systems?

The answers are complicated. The Global South’s need for foreign aid—which is currently under attack by the Trump administration—is a larger, systemic issue that is steeped in centuries of inequality and the history of colonialism. Colonial systems of exploitation and extraction continue to enrich the Global North while keeping the Global South artificially poor. At PIH, we call this systemic injustice—the biased, manmade structures, rules, and regulations that inflict deep harm on countries and their people. While restoring foreign aid is incredibly important to alleviating the immediate harms caused by its removal, it's also important to address the chronic issues that produce enormous unnecessary suffering in the first place.  

This is why, in addition to delivering health care on the ground, PIH is engaging in advocacy to alleviate issues of systemic injustice. This is a story of one of these issues: global debt.

It's a topic that PIH’s late Co-Founder Dr. Paul Farmer didn’t shy away from.  

“Claims that we live in an era of limited resources fail to mention that these resources happen to be less limited now than ever before in human history,” Dr. Farmer wrote in Pathologies of Power. “Arguing that it is too expensive to treat multidrug-resistant tuberculosis sounds nothing short of ludicrous when this world contains individuals worth more than $100 billion.”

As Dr. Farmer points out, the resources needed to facilitate sustainable health care delivery for everyone aren't in short supply—they just aren't directed where they're needed. Outflows from poor countries, like enormous debt payments, prevent funding from being used to address basic needs like health and education.

Carrying on his legacy, the PIH Advocacy team, informed by the devastating impact the debt crisis is having in PIH-supported countries and beyond, are ramping up efforts to champion legislation and policy change—both within the United States and globally—to address predatory lending practices that keep dozens of countries locked in an endless cycle of debt and prevent them from investing in health care and other public services.  

Chloe Dahleen, PIH advocacy specialist, and Joel Curtain, PIH senior director of advocacy, help break down the current situation, the evolution of global debt, and what needs to happen to rebalance a dysfunctional global health financing system.

The Debt Crisis, Explained

Governments around the world get into debt by borrowing money from sources such as investors and pension funds, international organizations, and banks or asset managers to help fund expenses that exceed their revenue. These expenses include public services that rely on government funding, such as education and health care.  

“While this debt, called sovereign debt, can be beneficial to fund things that are vital to a country’s development—such as schools, hospitals, and disaster relief programs— it can also cause significant harm to countries when structural factors impede their ability to pay it back,” Dahleen shared.

In many of the world’s developing countries, public debt and rising interest rates have become a massive burden, threatening many of the programs they were intended to build up.

Compared to 2011, governments are now allocating twice as many resources toward paying public debt, leaving less money for sustainable development as they are forced to prioritize debt spending over public spending. The International Monetary Fund (IMF) has estimated that over 70 countries are either currently in or near debt distress. In 2023, approximately 60% of critically indebted countries cut their public spending by an average of 2.4% of their GDP.  

Global debt levels have recently exploded:

• Public debt levels have more than doubled since 2008, with global public debt reaching a record $97 trillion in 2023.
• 2024 is the costliest debt service year this century, estimated to top $400 billion,  
• And in 2024, countries will have to pay almost 10 percent more in debt service than in 2022, when payments reached $365 billion.

According to UN Trade and Development:

• Developing countries’ net interest payments on public debt reached $847 billion in 2023, a 26% increase compared to 2021.
• On top of that, developing regions borrow at significantly higher rates, with interest payments 2 to 4 times higher than those of the United States, and 6 to 12 times higher than Germany.
• And 48 developing countries, with a total of around 3.3 billion people, spend more on interest payments alone than on either education or health.

Often, countries will end up paying their original loan many times over through principal and interest payments.

These crushing debt conditions also make it impossible for countries to invest in climate adaptation and mitigation. The same countries that are overburdened by debt are often the ones hardest hit by the climate crisis. Many citizens of developing countries are impoverished, living in precarious housing environments, and may rely on farming for survival. When floods, cyclones, earthquakes, hurricanes, and other natural disasters destroy the existing infrastructure and many people’s livelihoods, a country’s relief efforts are often funded by loans—which will eventually have to be paid back, plus interest. It’s a double burden.

The Evolution of Global Debt

So how did low- and middle-income countries get here in the first place?  

Colonial powers have always seen the Global South as critical to Northern economic growth and capital accumulation. Colonialism served this goal through the theft and extraction of resources and labor—through untold forms of violence. So, the primary objective of anti-colonial movements was not just to realize formal independence but to break this colonial arrangement.

In the 1940s to ‘60s, as many countries won independence through anti-colonial struggle, many did just that by pursuing economic sovereignty. Southern governments embarked on reforms to address the root causes of underdevelopment, including investing in public services like health care and education, resulting in dramatic reductions in poverty and an increase in per capita income.

However, as they were losing access to cheap labor and resources from the Global South, Northern powers intervened, and by the 1980s, the colonial economic arrangement was reestablished. This was done first through coups and then through leveraging power as creditors to reverse progressive domestic reforms in Global South countries.

Extraction of cheap labor and resources from the Global South to the Global North left former colonies with no choice but to borrow money to pay for essential services. By the 1970s and ‘80s, most of the former colonies owed sovereign debt to multilateral development banks, like the World Bank or the IMF, which were set up and controlled by the Global North. The multilateral development banks give loans to developing countries at fairly low interest rates. However, these loans come with restrictions and conditions known as structural adjustment—a deadly mix of privatization (selling off public assets), austerity (cuts to social spending), and trade liberalization (eliminating subsidies to protect domestic industries, and cutting protections on labor and the environment). These policies enabled the continued appropriation of resources by the Global North.

When some countries failed to pay back their loans—largely due to factors outside of their control, like adverse global economic conditions—they received lower credit ratings and became less attractive to official creditors, like other countries. These punishing practices led countries to seek out other creditors, such as in the private sector.

While there is more flexibility with these loans, private creditors impose higher interest rates, justifying them due to countries’ lower credit ratings. Additionally, the more countries borrow from larger and more diverse creditor groups, the more complex things get in the event of a default.

“There are no international rules or regulations that require orderly loan restructuring when countries cannot pay their debts,” Curtain said. “There is no bankruptcy court for sovereign nations.”

Private creditors, who make up an increasing proportion of lenders to developing countries, don’t have to comply with restructuring deals. This impasse sometimes leads countries back to where they started; the World Bank or the IMF end up providing additional loans, which should be supporting needed social services like health care and education, but are instead being drained to pay back private creditors. In essence, global taxpayers foot the bill for predatory private lending practices.

The Private Creditor Problem

In recent years, private creditors’ involvement in sovereign debt has increased dramatically, which becomes problematic when profit margins take precedence over financing obligations. For example, since 2022, private lenders received nearly $141 billion more in repayments from public borrowers in developing countries than they issued in new financing —the first time since 2015 this reversal has occurred.  

This means that countries in the Global South had to spend more money servicing their existing debt than private creditors made available to them in the form of new lending, obfuscating the stated aims of providing needed capital to assist with development. Low- and middle-income economies owed 61% of their external public debt to private creditors at the end of 2021—a 15% increase from 2010. These payments siphon off revenue that could—and should—go toward a country’s sustainable development, including health care.  

The gap between the people making these financial decisions and those who must live with the consequences of those decisions is extreme, and unjust.

To close the financing gap, a report from Debt Relief for Green and Inclusive Recovery estimated that over $800 billion of debt needs to be restructured across all creditor classes. In order for countries to meet their financing needs for climate mitigation and sustainable development goals, the report estimates that public and private creditors will have to accept less than what was due on particular loan payments—between $317 billion to $520 billion in debt relief, at minimum.  

That is a far cry from today’s reality.  

“Instead of granting debt relief, certain private creditors are suing poor countries—usually in courts based out of New York or London—when they reach such a dire financing situation that they default or need to restructure their debt,” Dahleen said. “As a profit-making strategy, these creditors will refuse to agree to a restructuring deal and then sue the country for the full payment, plus interest. The human cost of this strategy, as countries undergo the resulting economic turmoil and people suffer from lack of access to essential goods, is immense.”

These creditors are called vulture funds: hedge funds that purchase sovereign debt when countries are nearing distress and their bonds are devalued. They then file lawsuits to claim repayment plus the interest, refusing to work with the countries and their other creditors to reach a restructuring agreement. These predatory practices enable them to profit from countries in debt distress.

Since the mid-2000s, about 50% of sovereign defaults end up in litigation, with most of the cases occurring in New York and London, as those are the primary jurisdictions private bonds are issued in. Over half of these bonds are governed by New York State laws.

Read Next: Learn more about how legislation in New York allows private creditors to take advantage of sovereign debt >