We are entering a period with unprecedented amounts of debt in economies right around the world. Global debt hit $255 trillion in 2019, reaching a historical high of 320% of GDP. This includes all of the debt held by corporations, financial institutions such as banks, governments, and households. Since 2010, total debt has risen in 80% of emerging and developing economies.
In 2019, approximately a quarter of all debt in the world was held by governments. This debt is known as sovereign debt. This resource concerns itself with sovereign debt in particular. Sovereign debt – how it accumulates, how it is managed, and how sovereign debt crises are avoided or tackled – is at the root of many of the global structural injustices and financial crises which have caused and exacerbated economic inequality both within and between countries in the last 50 years, in both Global North and Global South.
Sovereign debt is further divided into internal (domestic) sovereign debt and external (foreign) sovereign debt. External sovereign debt is debt owed by a government in a currency other than its own, in a currency it does not have sovereignty over. That is the form of debt which this article and these activities broadly focus on. For further information about the differences between domestic and external sovereign debt, see the FreshUP article on Modern Monetary Theory.
Meanwhile, debates – academic and political – continue to rage about how much sovereign debt governments should hold, who is responsible for un-repayable debts and for causing debt crises, and what is the appropriate way to respond when governments are unable to repay their debts – i.e. face debt crisis.
The highest growth in debt globally in the past decade has been in corporate debt – the debts of private companies, excluding banks and other financial institutions. While in theory the risks associated with this debt lie with private companies and shareholders – and therefore don’t impact on the general public – in reality, often when companies face difficulties repaying their debts, they turn to governments (and, therefore, taxpayers) for support. Although in low-income countries non-publicly guaranteed external private debt has remained a small portion of their total external debt, it has substantially increased in a decade, from US $3.99 billion in 2008 (5 % of total external debt in low-income countries or LICs) to US $14.25 billion in 2018 (9.49 per cent of total external debt in LICs). In middle income countries, private debt makes up a third of all external debt.
