Debt System Squeezes Public Services and Poor Nations

The U.S. national debt recently passed $40 trillion. Meanwhile, developing countries face rising debt-service costs that crowd out investment and heighten the risk of further debt crises. Public services and communities bear the borrowing bill, despite having little say in decisions made by governments, lenders and financial institutions.

Who Pays the Debt Bill

“High refinancing needs and rising debt-service costs are constraining many developing economies... limiting their capacity to finance critical spending on infrastructure, health, and education, which undermines growth and, in turn, debt sustainability,” IMF Managing Director Kristalina Georgieva told G20 finance ministers. The hierarchy is plain: debt payments compete with spending people rely on.

More than half of developing countries face liquidity and financing challenges, according to a Fortune commentary by Masood Ahmed, Mary Svenstrup and Christina Segal-Knowles. The authors said the average developing country spends more than 10% of its revenue on debt interest, nearly double the burden a decade ago. In 10 countries, interest payments exceed the entire public investment budget.

Sub-Saharan Africa’s real per capita incomes rose about a fifth in the decade to 2015, the authors said, but haven’t grown in the decade since. They tied the pressure to low-cost external borrowing from the Covid era coming due as global borrowing costs rose and affordable financing sources evaporated.

Creditors First, Public Needs Later

The IMF and multilateral development banks helped countries avoid widespread default, the Fortune authors wrote, but didn’t provide enough to restore growth or resilience. G20 creditors continued to withdraw money, while much of the new multilateral funding went back to repay creditors. China, they said, shifted from a net provider of finance to a net extractor over the past decade. A record share of poor countries net-repaid the IMF in 2026, and the authors said that drain is set to widen by 2030.

Without action, around 40 of the world’s poorest countries could face a choice: cut spending at significant cost to growth and human lives, or finance deficits and debt rollovers through expensive private borrowing that could lead to default. Institutions and creditors shape those options. People pay the price, as their access to health, education and infrastructure is already being squeezed.

A Global Bill for Power and Borrowing

At meetings of the International Monetary Fund and World Bank Group in Bangkok, officials and analysts discussed the economic effects of the war in Iran, artificial intelligence and climate-related shocks. TIME reported that the war had raised fuel prices and contributed to inflation, while public debt was soaring and the IMF warned it was unsustainable. The war is also draining tens of billions of dollars from the U.S. treasury.

A United Nations Development Programme report described a “triple shock”: high borrowing costs, the energy price spike and extreme weather events driven by this year’s El Niño, which the report said was on course to set records. An International Energy Agency survey cited by the report identified 95 countries with fuel-price support policies, including subsidies or fuel-tax reductions. Explicit fuel subsidies could exceed $1 trillion globally this year, according to the UNDP, which called that approach unsustainable.

Some countries, particularly those dependent on imports, are making longer-term changes through renewable energy, energy efficiency and electrification, including subsidies for electric buses and lower tariffs on solar panels. But high debt, interest rates and climate shocks make it harder to finance infrastructure that could reduce exposure to fossil-fuel price swings. Debt also makes AI infrastructure investment harder, while countries’ preparedness for AI may increasingly intersect with the non-fossil share of their energy supply.

In the United States, The Hill opinion contributor John Mac Ghlionn said the debt stood at $36.2 trillion when President Trump took office for his second term in January 2025, and has since risen by nearly $4 trillion. Interest payments on past borrowing now exceed federal spending on national defense or health care for millions of citizens. The same article said Trump had increased his personal net worth by $2.2 billion during his second term; his elder sons, Eric and Donald Jr., had joined investment firms; and twenty-year-old Barron Trump had reportedly accumulated a $150 million cryptocurrency fortune.

The Fortune authors called for a coordinated growth and investment effort rather than imminent debt restructuring for most countries facing financing and liquidity challenges. They said the Rockefeller Foundation had published a policy proposal for a Growth and Investment Reset, and existing resources at international financial institutions and newer financing mechanisms could make the plan relatively inexpensive for donors. They cited President Mahama of Ghana among leaders building a model of country-led growth supported by domestic resources and private investment. Those proposals remain within the institutions and financing systems the authors described. Debt costs are already constraining public spending.