As the fourth International Conference on Financing for Development (FfD4) kicks off in Seville, Spain, we look at how a massive debt burden on developing countries is holding them back. As an unfit global financial architecture makes accessing finance more difficult for countries in the developing world, governments are left with the option of either servicing the debt or serving the people. Read the first part.
The mounting debt burden of the developing world has reached a stage where it has completely reversed the North-South resource flows. According to the World Bank International Debt Statistics, developing countries experienced a net resource outflow when they could least afford it.
In 2022 and 2023, developing countries cumulatively paid $38.5 billion more to their external creditors than they received in fresh disbursements, resulting in a negative net resource transfer. No other statistics could make a greater mockery of the rich world’s idea of itself as a benefactor of the developing world. As experts point out, this reverse flow of resources is not only immoral but it is a major contributing factor to continued poverty and environmental degradation in poor countries, where economic resources have to be exploited quickly, simply to pay off debt.
However, assessing the overall flow of debt finance between creditors and developing country borrowers reveals concerning trends. Net transfer on sovereign debt provides the difference between total disbursements by creditors to borrowing countries and the total repayments (principal and interest) made by the borrowing countries.
Negative net transfers for a particular year implies that the borrowers spent more money on sovereign debt repayments than they received in loan disbursements. In 2023, the Netherlands — the third largest bilateral creditor in the world — disbursed $9.9 billion in external public debt to low- and middle-income countries (LMIC) and received $17.02 billion from them in debt servicing. This amounted to a negative net transfer of $7.12 billion on external debt.
China, the largest bilateral creditor in the world, disbursed $12.07 billion in external public debt to LMICs in 2023 and received $24.14 billion in debt servicing, amounting to a negative net transfer of $12 billion.
Often, creditors also employ debt mechanisms that tie in a country’s natural resource export earnings with debt repayment. For instance, Chad owes nearly a third of its external debt — $1.45 billion — to the Swiss oil giant Glencore. In 2020, Chad sought debt restructuring under the G20 Common Framework. In November 2022, a reprofiling deal was reached, which continues using oil revenues to service the loan, but extends payment schedules beyond 2024, providing the country temporary relief.
Similarly, Zambia, which relies on copper for export earnings, defaulted on its external debt repayment in 2020 — as COVID-19 hurt export. It then faced pressure from private and bilateral lenders to prioritise copper export revenues for debt servicing.
Further, a Zambian state mining firm inherited a $1.5 billion debt to Glencore in 2021 when it took full control of Mopani Copper Mines, in a deal that required repayments through a share of copper revenue. The arrangements ensured that much of Zambia’s copper earnings flowed outward. Such examples show a pattern of resource extraction from developing countries on the pretext of debt repayment.
This article was first published as part of the cover story Debt's climate link in the July 1-15, 2025 print edition of Down To Earth.