6th July 2025, Kathmandu
Over the past two decades, many developing countries have achieved notable progress. They reduced poverty, improved health services, expanded education, and invested in infrastructure. These successes were made possible through responsible borrowing and sound policies. Global financial cooperation played a key role.
Global Debt Crisis 2025
Now, those gains are in danger. Debt levels are rising fast. According to Axel van Trotsenburg, Senior Managing Director of the World Bank, 54% of low-income countries are either already in or at high risk of debt distress. Debt servicing now consumes more public funds than health, education, or infrastructure in several nations.
Limited Credit and Repeated Shocks
Access to affordable credit is shrinking. At the same time, countries face repeated economic shocks. These include rising interest rates, volatile commodity prices, and natural disasters caused by climate change. These challenges increase financial pressure and reduce fiscal space.
The Debt System Has Changed
The World Bank’s van Trotsenburg explains that the debt landscape has fundamentally changed since the early 2000s. At that time, global efforts such as the Heavily Indebted Poor Countries (HIPC) Initiative and the Multilateral Debt Relief Initiative (MDRI) helped ease debt burdens in many countries.
Today, things are more complex. Countries borrow from a wider range of lenders. These include private institutions, non-Paris Club governments, and state-owned banks. Much borrowing happens off the books. Some loans are made secretly, without public disclosure or oversight.
Global Institutions Take Action
To address rising debt challenges, the World Bank and International Monetary Fund have stepped in. They provide increased funding and technical advice. They also help manage debt more effectively. The G20 Common Framework offers a path for countries to restructure debt, but progress has been slow.
The Global Sovereign Debt Roundtable brings together lenders and borrowers to improve coordination. But van Trotsenburg believes that without deep reform, these measures will fall short.
Transparency Is the Most Urgent Need
Van Trotsenburg emphasizes that debt transparency is the strongest defense against future crises. In many countries, hidden debts only come to light during financial collapse. This undermines investor confidence and delays corrective action.
He points to recent cases where countries regained access to capital markets, only to later fall back into distress when secret debts were revealed. These situations cause panic and discourage investment.
Small Gains, But Gaps Remain
Some progress has been made. Since 2020, more than 75% of low-income countries now publish some debt data. Before that, fewer than 60% did. But the data is often incomplete, outdated, or unclear.
Only 25% of countries publish full loan-level details for new debt. Many governments cannot monitor debt comprehensively. As more borrowing happens outside the central government, oversight becomes even harder.
Countries are increasingly turning to private placements, central bank swaps, and collateral-backed loans. Domestic debt is also rising, yet most nations do not have proper disclosure mechanisms.
Hidden Debt Weakens Trust
When debts remain undisclosed, risks grow. Credit ratings fall. Investors lose trust. Governments struggle to plan responsibly.
Another major concern is confidential debt restructuring. These often happen in private between governments and select lenders. These hidden deals limit transparency, delay solutions, and reduce market stability.
A Global Call To Action
Van Trotsenburg calls for coordinated global action. Borrowers, lenders, and international institutions must work together to close the debt transparency gap.
In the World Bank’s Radical Debt Transparency report, he outlines a set of urgent reforms:
Disclose full loan terms and collateral
Expand national oversight of all types of debt
Strengthen tools for debt reporting and risk detection
Conduct joint data reconciliation between borrowers and lenders
Publish restructuring terms after agreements are reached
Technology Can Help, But Capacity Must Improve
The report proposes a digital platform for debt recording. It would help standardize reporting and flag discrepancies early. But van Trotsenburg cautions that technology alone is not enough.
Countries must build their internal capacity to assess and negotiate debt. They must not depend solely on lenders or intermediaries for advice.
Restoring Confidence Through Transparency
In his statement, van Trotsenburg stresses that radical debt transparency is key to rebuilding investor confidence. Transparency helps attract investment. It supports growth and job creation in low-income countries.
Without swift reform, the world risks entering another period of debt-driven instability. “If we are serious about protecting development gains,” van Trotsenburg warns, “radical debt transparency is no longer optional. It is the clearest path to financial resilience.”
For more:- Global Debt Crisis 2025