UK initiatives to tackle soaring national debts in the world’s poorest nations could fully counteract the effects of recent aid reductions, delivering net gains in water, sanitation, education, and health sectors, according to new research.
One year ago, the UK reduced its aid budget by 40%, from 0.5% to 0.3% of Gross National Income (GNI). This shift is projected to keep 2.9 million fewer children in school, deny clean water and sanitation to 12 million more people, and cause over 600,000 additional preventable deaths.
The Growing Debt Crisis in Low-Income Countries
Low-income countries now devote an average of 18% of government revenue to servicing foreign debts, up from 5% in 2014. Around 3.3 billion people live in nations spending more on debt repayments than on education or health. These countries also allocate billions more to debt than they receive in climate aid.
Debt Relief as a Countermeasure
Recent analysis from CAFOD, drawing on research by the University of St Andrews and Save the Children, shows that capping debt servicing at a sustainable 10% of revenue would free up resources to offset aid cut damages. Specifically:
- While aid reductions threaten water and sanitation access for 12 million, debt relief could supply clean water to 11 million and basic sanitation to 23 million.
- The 2.9 million children losing school access could be matched by funding for 3 million more enrollments.
- Health sector impacts, including risks of systemic collapse noted by the World Bank, could save about 43,500 lives yearly.
“Children bear the brunt of unsustainable debt,” states Lydia Darby, senior financial adviser at Save the Children. “Reducing payments to sustainable levels creates fiscal space for shocks and enables investments in health, nutrition, and education essential for children’s survival.”
Sandra Martinsone, policy and advocacy manager at Bond, adds: “Over 50 of the poorest countries face history’s worst debt crisis, hitting marginalized communities amid conflicts and climate shocks. Ignoring it costs lives and erodes global progress toward prosperity and stability.”
UK’s Pivotal Role in Debt Solutions
Effective debt relief involves diverse creditors like Western governments, China, and private institutions with high interest rates. The UK holds influence since 45% of sovereign debts fall under English law, rising to 90% for G20 Common Framework-eligible nations, thanks to London’s financial hub status.
Parliament’s International Development Select Committee urged legislation to mandate creditor participation in relief if a majority agrees. The prior government favored market-based approaches, a path continued by the current Labour administration via the voluntary London Coalition.
Maria Finnerty, chief economist at CAFOD, warns: “We can’t delay a functional process as distressed countries multiply. The UK Treasury cost is zero, benefits immense—only political will is lacking.”
HM Treasury responds: “Addressing unsustainable sovereign debt is a key priority. We support an international system aiding development and tackling vulnerabilities in low-income countries.”
Pathways Forward for Debt Reform
A 10% debt cap anchors the analysis, but practical forms vary. The Jubilee 2000 campaign canceled over $100 billion (in today’s terms). Today’s complex creditors demand nuanced strategies.
Reforming the G20 Common Framework—criticized for delays deterring investors and worsening crises—tops proposals. The African Union’s Lomé Declaration calls for transparency, debt service suspensions post-application, and forgiveness tied to climate action.
Bolder ideas include a UN debt restructuring framework or an International Bankruptcy Court. “Restructuring needs judges,” Finnerty argues. “No company negotiates bankruptcy creditor-by-creditor; countries shouldn’t either.”
Campaigners expect multi-year efforts, eyeing the UK’s 2027 G20 Presidency. Consensus grows among economists, G20 governments, and financial institutions: urgent reform is vital for developing nations to fund services and achieve self-reliance.
