mazzucato39_Angelika Warmuthpicture alliance via Getty Images_g7 summit Angelika Warmuth/picture alliance via Getty Images

How the G7 Could Help the Debt-Distressed

If G7 leaders are serious about helping low- and middle-income countries prepare for the next pandemic or address climate change, they have an odd way of showing it. As many developing countries hurtle toward a debt crisis, rich countries are failing to pull the levers that could help them avoid the worst.

LONDON – This month, G7 leaders will gather in Germany to discuss a litany of overlapping global crises, including the war in Ukraine, food insecurity, inflation, backlogged global supply chains, the pandemic response, and climate change. These challenges have a common denominator: All are falling hardest on low- and middle-income countries that are already facing an escalating debt crisis.

When COVID-19 arrived two and a half years ago, nearly 60% of the poorest countries were already in or at high risk of debt distress. Since then, the pandemic has pushed this cohort’s total indebtedness to a 50-year high, leaving more than two dozen countries at risk of defaulting in 2022 (with Sri Lanka becoming the first casualty last month).

Most of these countries are still struggling to recover from the pandemic, and now a tsunami of negative shocks is threatening their prospects further. On top of soaring prices for staples like energy, wheat, and fertilizer, interest-rate hikes in the United States and other major economies are driving up borrowing costs globally.