Rich nations profit as developing countries drown in debt

The global south bears the burden of a skewed financial system.

Last month, Fiji’s finance minister cautioned that managing the nation’s economy is becoming increasingly unfeasible due to global heating fueling catastrophic weather events. Photo by Sina Schuldt/Getty Images

By The Editorial Board

The financial dynamics between rich and developing nations highlight a persistent and deeply entrenched global inequality. According to the World Bank, in 2023 alone, the wealthiest countries reaped over $1.4 trillion in loan repayments from the global south. This staggering figure is projected to climb to $2 trillion annually by 2030, underscoring the deep economic imbalance that continues to exploit poorer nations.

The global south finds itself shackled to a financial system where borrowing in rich-world currencies is a necessity for purchasing essentials like food and energy. Meanwhile, the exports of these nations—often low-value goods—rarely match the financial weight of their imports, further deepening their economic challenges.

While traditional colonialism has ended, the patterns of economic extraction persist. The withdrawal of colonial administrations did not dismantle the exploitative structures they left behind. Instead, these systems have been rebranded under the guise of global trade and finance.

The threat of a developing world debt crisis looms large, shaped by external factors beyond their control. Rising U.S. interest rates and fluctuating export prices—determined by commodity speculators and wealthy-world buyers—create a precarious situation for countries reliant on foreign exchange reserves to stabilize their economies.

A 2022 study highlights how the global north's economic model continues to depend on resource extraction and labor exploitation from the global south. Between 1990 and 2015, wealthier nations drained an estimated $242 trillion (in 2010 prices) from poorer countries. This vast transfer of wealth happens subtly, devoid of the overt coercion of colonialism, yet it fuels global inequality and ecological destruction.

The economic inequalities of the global system are exacerbated by the climate crisis. Small island nations like Fiji bear the brunt of catastrophic weather events while contributing little to global carbon emissions. Last month, Fiji's finance minister, Biman Prasad, starkly outlined the economic devastation caused by climate-induced disasters. He described economic contractions of 30% to 70% within a decade due to single cyclones—a scale of devastation rarely seen outside wartime.

Prasad’s remarks at an international conference were a rallying cry for change. He criticized how most development funding benefits donor nations rather than the vulnerable countries it claims to support. His call to "decolonize international development" resonates with growing demands from the global south for greater fairness and autonomy in addressing climate and economic challenges.

Efforts to guide the global south towards economic stability often prioritize service-led growth, as recommended in the UN’s recent trade and development report. However, some experts argue this approach is misguided. Cambridge University scholar Jostein Hauge, in his book The Future of the Factory, emphasizes the enduring importance of industrial production for economic growth.

Hauge contends that manufacturing drives innovation and development in ways that service-led growth and automation cannot replicate. He also points out that the global north continues to restrict fair market access for poorer nations while evading responsibility for environmental harm.

Low-income countries account for only 1% of global “excess resource use,” yet they are often pressured to implement green policies without adequate support. Meanwhile, the wealthier nations continue unsustainable practices, effectively colonizing the planet’s ecological commons. Hauge argues that decolonizing these commons should be a top global priority.

What must be done?

The challenges faced by developing countries require bold and comprehensive solutions. Here are three critical areas where immediate action is necessary:

1. Debt relief: Developing nations need substantial debt forgiveness to escape the cycle of repayments that divert resources away from critical investments in infrastructure, education, and healthcare.
2. Fair climate funding: Wealthy nations must provide equitable and consistent financial support to help vulnerable countries adapt to climate change and recover from its impacts.
3. Reforming global trade rules: Trade policies should empower the global south to access fair markets, diversify their economies, and achieve sustainable growth. This includes addressing exploitative practices by multinational corporations and ensuring that developing nations retain greater value from their resources.

The current system sustains global inequality by prioritizing the interests of rich nations at the expense of the developing world. The economic and environmental crises faced by the global south are not isolated challenges; they are direct consequences of a global order that perpetuates exploitation.

Addressing these issues requires not only structural reforms but also a shift in perspective. The global north must recognize its role in creating these imbalances and take responsibility for fostering a more equitable and sustainable world.

Empowering the global south is not just a moral imperative—it is essential for global stability and prosperity. By prioritizing debt relief, fair climate funding, and equitable trade, the international community can take meaningful steps toward dismantling the systems of exploitation that continue to undermine progress.

The time to act is now. Developing nations deserve more than rhetoric—they need resources, autonomy, and genuine support to thrive in an increasingly interconnected world. Only then can we begin to rectify the historic injustices that have shaped our global economy.

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