UK government action on debt can be an antidote to despair amid aid cuts

“Tackling unsustainable debt” was rightly included as one of the focus areas for a modernised approach to international development in the 2024 Labour Manifesto.

As the UK government seeks to “shape what development looks like for the next 20 years”, 2025 offers a renewed opportunity to create change in the global debt architecture – particularly given the momentum around key calendar moments such as the UN Fourth Financing for Development Conference, and South Africa hosting the G20. Action on debt should also be considered a key priority in light of the chaotic global geopolitical context with development assistance cuts, economic turmoil and a burgeoning global trade war. The UK is also one of two major legal jurisdictions for sovereign debt, which brings significant influence and responsibility.

Save the Children strongly oppose the cuts that would mean Official Development Assistance (ODA) levels plummet to 0.3% of GNI by 2027. When you take mounting in-country costs, like refugee hosting, into account, this is the lowest levels of development assistance going overseas since records began in 1979. While taking meaningful and urgent action on debt is not a substitute for ODA, it would help mitigate the worst impacts of these misconceived cuts. It would help signal that the UK continues to be serious about creating a world free from poverty on a liveable planet.

Action is urgently needed as the climate crisis intersects with a reversal of development progress.  In 2024 a record 743 million children—one-third of the global child population—were exposed to extreme heatwaves. Last year, 18.2 million children were born into hunger and a healthy diet is now unaffordable for nearly half of world’s children.

Why action on debt is needed more than ever

Unsustainable levels of debt are compounding the impacts of the climate and development crises. 470 million children live in the 40 low- or lower-middle income countries who are either in or at high risk of debt distress. These debt burdens divert critical finance away from national government’s ability to invest in important social services, lower their emissions or adapt to a warming climate. Today, 28 lower-income countries spend more on debt payments to overseas creditors than on domestic education or health. Families can’t afford healthy diets for their children, yet in 15 countries the interest payments to external creditors alone equal what is needed to ensure that a healthy diet is affordable for every child.[i]

UK action on debt can be an antidote to despair as aid funding goes down and the climate crisis ramps up. It’s a tool the UK government could still use to make a difference. Tackling unsustainable debt requires reform of the global debt governance system and the recommended actions are low- to no-cost, offering a route for the UK to still take positive action in support of lower-income country partners despite the ODA cuts. The current context makes it more important and strategic than ever before.
 
For example, South Sudan is a country at high risk of debt distress that is also facing legal proceedings by Afreximbank regarding a sum of US$657 million. Meanwhile, the country suffers the impacts of multi-year floods, droughts, catastrophic food insecurity and conflict. This year, dangerously high temperatures forced schools to close for the second year in a row, putting education out of reach for many children and increasing risks of early marriage, child labour and recruitment into armed groups.

…The Afreximbank case underscores the challenges faced by African nations in managing sovereign debt while balancing economic development with political stability. 

The African Sovereign Debt Justice Network said.

This case also epitomises the very contradiction with diverting ODA funding to defence in the UK.

our development spend protects not only the most vulnerable across the world but also the UK’s security, not least by helping to prevent conflict in the first place. Cutting ODA further to fund increased defence spending is a false economy that makes us less safe.

Sarah Champion highlighted in her recent letter regarding the cuts.

South Sudan’s example also emphasises the importance of taking urgent, meaningful action to fix the global governance of debt.

A moral and strategic priority for this government

Relieving debt burdens could help increase the fiscal space for countries around the world to make greater investments in their own development priorities and climate. It would help the UK rebuild trust with its partners and restore some global leadership and trust.

Action on debt is also in the interests of UK citizens. Around the world, financial investments in long term economic development, climate action, health security and conflict prevention are key for the global security and prosperity on which the UK depends.  

2025 is the year for action, and the Labour government needs its own, refreshed approach to fulfilling this manifesto pledge.

The UK could play a unique and outsized role this year to drive the reform of the global governance of sovereign debt, including by:

1. Supporting calls for a debt framework convention under the United Nations (UN) – the UN is the only institution that can create the conditions for genuinely fair and equitable debt negotiations.  
2. Improving transparency around debt, including the quality and quantity of the UK’s own data reporting, disclosure and transparency. Where the UK has jurisdiction over debt contracts they should also be pushing for greater transparency.
3. Starting a consultation process to critically assess the benefits and risks of legislative options to compel private creditor participation in debt relief processes. The UK government has done this before in 2011, but that legislation is now out of date. A review of the former legislation found it to have been a success and without adverse impacts on the UK economy – and is a key lever the UK government could pull to effect change.
4. The UK should push for the reform of the Low-Income Countries Debt Sustainability Framework (LIC-DSF). The current use of DSAs in debt restructurings is leaving countries on the edge of the ‘high risk’ category – one shock will push countries back into unsustainable levels of debt.
5. The UK should also work to prevent liquidity crises and shocks from derailing progress. This could include shock proofing debt agreements with State Contingent Debt Instruments (SCDIs) and Debt Clauses in the wake of catastrophic events – which the UK is already taking strong leadership on. Such clauses should be offered as standard to debtors where they are appropriate and fit for purpose.

Read more in Save the Children’s latest report, ‘In the Interest of Children: How the UK Government Can Fulfil Their Manifesto Promise to “Tackle Unsustainable Debt”’.

[1] Data on external debt service and interest payments for 2023 from the World Bank International Debt Statistics (IDS). Spending on education and health from UNESCO and WHO, respectively. Analysis of healthy diets based on World Bank Food Prices for Nutrition database (latest data available for 2022). FAO food inflation data was used to estimate the cost of a healthy diet in 2023. We then estimated the number of people who cannot afford such a diet following the Food Prices for Nutrition methodology using information on income distributions from the World Bank Poverty and Inequality Platform. Finally, to estimate the number of children who cannot afford a healthy diet, we apply the share of children living in each wealth or income quintile of the population (using the data compiled from the GLOPOP-S dataset by Ton et al. 2023) and UN Population Prospects