There is a Moral Imperative to Address the Debt Crisis Derailing Human Development

Debt relief is one of the key issues religious leaders from around the world will discuss at the Religions for Peace 2026 International Council meeting, June 23-25. The issue is profoundly intertwined with conflict and climate change.

For insights on the current status of efforts to address debt relief, Religions for Peace turned to Dr. Martín Guzmán, former Minister of Economy of the Government of Argentina, Professor at the Columbia University School of International and Public Affairs and co-president of the Columbia University Initiative for Policy Dialogue, specializing on the fields of public debt, international macroeconomics and monetary economics. He is also co-author of the 2025 Jubilee Report: A Blueprint for Tackling the Debt and Development Crises and Creating the Financial Foundations for a Sustainable People-Centered Global Economy.

Religions for Peace: In 2025, you co-chaired the Jubilee Report with economist Joseph Stiglitz. What is the current status of efforts to address debt relief?

Dr. Martín Guzmán: Okay, so this is the situation. Large parts of the developing world—developing countries—are today suffering from a situation of debt distress that is severely affecting their possibilities for economic and social development. Basically, debt service has taken such a massive place in their budgets, occupying such a big space in the use of the resources of these states, that they have been forced to cut investments that are critical for development, like education, health, and public infrastructure, just to continue servicing their debt. Crucially, they are doing this in a financial context that is far more adverse than the context in which they originally borrowed.

Multilateral organizations are lending to them, but rather than using those loans for their intended purposes—like macroeconomic stabilization or development policies like critical infrastructure investments—the money is de facto being used to repay debts mostly to the private sector. Because money is fungible, they take these stabilization loans and hand them over to private sector creditors who are unwilling to refinance the existing debt. At the same time, as I said before, these governments are cutting critical public expenses to create more space for debt payments.

This brings us to today’s stark situation: 3.3 billion people in the world live in countries that spend more on debt service than on health; 2.2 billion people live in countries that spend more on debt service than on education. These figures are significantly worse than they were just five years ago, and vastly worse than a decade ago.

Alarmingly, the international financial community does not have the incentive to recognize this problem because creditors continue getting repaid in most cases. They are effectively being bailed out with money from international taxpayers combined with the fiscal adjustments that the distressed countries’ populations are forced to suffer. Therefore, creditors prefer to let things go on exactly the way they are happening now. What we are seeing is a profound crisis of economic development.

The Jubilee Report proposes a path for resolving this immediate crisis, as well as a path for reforming the broader global financial architecture that allows these situations to happen in the first place. Twenty-five years ago, we had a “Jubilee” cancellation of debts in low-income countries. Back then, the debt was primarily held by official institutions—multilateral and bilateral creditors. Just a few years later, these countries started borrowing heavily from the private sector under unfavorable conditions. Now, we have the exact same problem but with different composition of creditors. Once again, debt is actively undermining development. The structural incentives of the current system naturally lead to these destabilizing situations, which is why the Jubilee Report outlines a systemic path for reform.

“3.3 billion people in the world live in countries that spend more on debt service than on healthcare; 2.2 billion people live in countries that spend more on debt service than on education.”

Right now, the situation is getting even worse for several countries due to the escalating geopolitical conflict involving the U.S., Israel, and Iran. This has injected widespread uncertainty into the markets. For countries that are not oil exporters the international financial conditions have worsened. They are pushed even further away from being able to refinance their debt, and they are suffering from the impact of inflated global prices. If they adopt domestic subsidies to cushion their populations from these price spikes, it creates even more fiscal stress. The situation is simply not getting better. We are going to publish a chapter in an upcoming volume organized by UNICEF that will layout all of this data.

Religions for Peace: What needs to be done to address the debt relief crisis?

When it comes to resolving this, there is a clear and urgent need for debt relief. The mechanism to achieve this is sovereign debt restructuring. Because these countries now hold debt with the private sector, these are legal contracts—mostly issued under the law of the State of New York or English law. You cannot simply negotiate sovereign-to-sovereign; you have to negotiate directly with private creditors to rewrite the contracts. The primary message must be that debt relief is mandatory to restore debt sustainability in these suffering nations, achieved through a series of restructurings.

For some countries, there will be a strict need for a “haircut”—a reduction in the actual principal level of the capital—alongside a reduction in interest rates and an extension of maturities. In other countries where the overall debt stock is lower, softer restructurings that do not reduce the principal but lower the interest rates and extend the maturities will suffice. Different countries are in different situations, but a large number of nations universally need some form of debt restructuring to restore sustainability. This is the most important message for religious communities to be aware of, along with the brutal consequences that a failure to act has on the daily lives of human beings.

There are more than 50 countries that are currently spending more than 10% of their total revenues on debt service; 17 countries are in high distress, meaning they are spending more than 20% of their entire tax revenues just on debt service. A few of them are spending more than 30%. Spending more than 20% indicates a deep, acute crisis situation, and we already have 17 countries there.

Religions for Peace: The Jubilee Report places significant attention on the structural flaws of the international system itself to prevent countries from falling into these trap debts to begin with. Could you explain those system flaws?

Dr. Martín Guzmán: There is a fundamental, structural asymmetry in the global financial system. To put it in technical terms: private capital flows are procyclical for developing countries and counter-cyclical for advanced economies.

What does this mean in reality? When the world is doing well and financial liquidity is ample, private capital floods into developing countries—which is exactly when they need it the least. But in times of global crisis and severe uncertainty—like after the outbreak of the war in Ukraine—speculative capital rapidly flows out of developing countries and flees back to the safety of advanced economies.

This means the global financial system actively amplifies volatility in poor countries while acting as a stabilizing cushion for rich countries, because wealthy nations receive massive inflows of cash precisely when global shocks hit. While the globalization of capital allows fiscal authorities in advanced nations to access excellent financing conditions to stabilize their economies during a crisis, exactly the opposite happens to developing nations. Their fiscal space shrinks to zero precisely when they need it most to protect their people. That is the fundamental asymmetry.

Furthermore, global policy agendas are disproportionately dictated by the world’s most powerful economies—the ones that hold the largest voting shares in critical international financial organizations like the International Monetary Fund (IMF) and the OECD.

Because of this, one of the core recommendations of the Jubilee Report is to implement strict macroprudential regulations on the movement of volatile capital. We need a framework that resembles the post-World War II Bretton Woods regime (which operated successfully from 1945 until the US abandoned it in 1971 under Nixon’s presidency). Advanced countries will naturally oppose this because it challenges their financial dominance, but developing nations must adopt their own domestic policy agendas to regulate capital.

The second systemic fix requires a shift in the implementation of the policies of international financial institutions regarding debt restructurings. The IMF must stop bailing out private creditors. When the IMF lends money to a country in distress, it must mandate a strict “no-bailout” condition. The IMF must ensure its stabilization funds are used for domestic recovery, not handed over to private lenders to pay off unsustainable debts. If the IMF enforces this, it will fundamentally alter market incentives, driving both the debtor country and the private creditors to sit down at the negotiating table and hammer out a restructuring.

“There are more than 50 countries that are currently spending more than 10% of their total revenues on debt service; 17 countries are in high distress, meaning they are spending more than 20% of their entire tax revenues just on debt service. A few of them are spending more than 30%. Spending more than 20% indicates a deep, acute crisis situation, and we already have 17 countries there.”

Religions for Peace: What are the other major roadblocks to implementing these debt relief programs right now?

Dr. Martín Guzmán: Aside from changing the IMF’s bailout policies, a massive short-term roadblock is an archaic flaw in the law of the State of New York. Because sovereign bonds are legal contracts, roughly half of all international bonds are bound to New York law.

Currently, New York statutory law dictates an absurd 9% statutory compensatory pre-judgment interest rate on securities that are in arrears. This fixed 9% rate was set back in 1981 when inflation in the U.S. was peaking at 8.9%. U.S. inflation fell drastically over the next 40 years, but New York lawmakers never changed the statutory rate. It has been a lingering distortion in the law for over four decades.

Because of this law, predatory bondholders have a massive incentive to intentionally delay debt restructuring agreements. They know that as long as the country remains in default, their returns are legally compounding at an artificial 9% interest rate. They can simply “hold out,” refuse to negotiate, and sue the sovereign government later to collect a massive payout. This legal flaw makes the sovereign debt inefficient and inequitable.

Religions for Peace: So, when countries face this crushing debt distress and lack the money to serve their populations, what are their actual options? Are they completely powerless, or do they possess some agency to change this?

Dr. Martín Guzmán: Most governments, unfortunately, choose to “kick the can down the road” because initiating a debt restructuring is politically costly and highly complex. When the global structure of incentives makes it so incredibly difficult for a developing nation to succeed at the negotiating table, leaders often choose to delay the pain. This is why changing IMF bailout policies, more timely and effective identification of debt relief needs in the IMF debt sustainability analysis, and a reform New York state law is so urgent—it removes the legal roadblocks and encourages governments and creditors to do the right thing more timely.

The other critical way developing countries can exercise their agency is by joining together to form their own independent, collective analyses of debt sustainability. Currently, most countries walk into negotiations relying entirely on the data and frameworks produced by the IMF. But IMF analyses and economic censuses are often heavily influenced by the vested financial interests of its largest wealthy shareholders. Developing nations must bring their own frameworks, their own terms, and their own unified leverage to the negotiating table.