How the West prospers as the rest drown

Global financial systems are metaphorically connected vessels, in which the policies of one country can create ripples felt by another. Recently, a troubling phenomenon has emerged: Wealthier Western economies, in their bid to tame inflation — often driven by corporate greed or “greedflation” — are adopting high interest rates. This seemingly domestic monetary policy has severe reverberations for the Global South’s poorer economies, precipitating a sovereign debt crisis of unprecedented scale.
In their quest to tame domestic inflation, Western central banks, notably the US Federal Reserve and the European Central Bank, often resort to hiking interest rates, a strategy that, while stabilizing their own economies, wreaks havoc on poorer nations. This policy tightens domestic credit but has dire global ramifications, particularly for emerging economies saddled with substantial dollar-denominated debt. As these rates climb, so do the costs of borrowing, making debt repayment increasingly untenable. For example, following the interest rate increases in 2022, many developing countries faced ballooning debt servicing costs alongside severe currency depreciation.
These nations end up caught in a vicious cycle: They must allocate more of their scarce resources to debt repayment while their currencies weaken, further inflating their debt burden. The situation echoes the debt crises of the 1980s — often referred to as the “Volcker shock” — that crippled Latin America and Africa, but now with the additional burden of complex, commercially sourced debt, leading to prolonged economic stagnation and deepening inequalities.
The Global South’s debt crisis is not merely a financial predicament but a consequence of deeply entrenched imbalances in the global economic order. As Western nations, such as the US and the UK, enjoy the privilege of issuing debt in their own currencies, countries like Zambia and Sri Lanka are forced to borrow in foreign currencies, often at exorbitant interest rates. This structural disparity means that, while rich countries can manage high debt-to-gross domestic product ratios without existential threat — Japan’s stands at 254 percent — poorer economies buckle under far lower ratios.
The result is a drain on their national budgets, diverting funds away from essential sectors like healthcare, education and infrastructure. For instance, Zambia’s external debt ballooned to $12.5 billion by 2021, driven partly by illicit financial flows and loss of export revenues to foreign investors. These dynamics lock these nations in a vicious cycle, with the burden of debt service stifling economic growth and perpetuating poverty, effectively allowing the Global North to outsource economic hardship to already-struggling economies. The question then becomes not just one of immediate debt relief, but of rethinking a flawed multilateral system that continuously disadvantages the Global South.
Beyond the surface threats of potential default and sluggish growth, the relentless escalation of debt repayments forces poorer nations into austerity traps, decimating their socioeconomic fabric. Austerity measures, often mandated by international creditors like the International Monetary Fund, primarily hurt the disadvantaged, skewing income distribution by shifting benefits to the top 10 percent, while impoverishing the bottom 80 percent.

The Global South is effectively condemned to tread water in a sea of debt as wealthier nations consolidate their prosperity. 

Hafed Al-Ghwell

The austerity cycle leads to stagnant or declining real wages and mounting unemployment, pressuring local labor markets to compromise on pay, worsening existing inequalities. This creates fertile ground for socioeconomic instability, directly impeding human capital development and long-term economic prospects. International financial structures, skewed toward creditor interests, thus perpetuate a cycle in which the Global South is structurally disadvantaged, effectively condemning it to tread water in a sea of debt as wealthier nations consolidate their prosperity.
The disparity in global economic policy, with Western economies vigorously combating inflation through aggressive monetary policies, heavily burdens the Global South. As interest rates rise in the Global North, debt servicing costs for poorer nations soar, exacerbating their financial woes and precipitating potential defaults. High inflation and modest global growth compound these challenges, pushing 15 percent of poor countries into debt distress and leaving half on the brink.
This is not merely about domestic stability, it also highlights an alarming neglect of the broader international economic repercussions. Such policies significantly strain global economic health, fostering inequality as these nations grapple with austerity measures, deteriorating socioeconomic conditions and hindered long-term recovery. This cyclical debt enmeshment prevents the Global South from achieving sustainable development, while rich nations consolidate their prosperity, laying bare a systemic financial inequity that threatens global stability.
It is this precise dynamic that epitomizes how the West prospers as the rest drown. As wealthier nations move to protect their markets and labor forces, poorer countries continue to bear the brunt. An ensuing cycle of debt and dependency effectively ensures that, while the Global North establishes a semblance of economic order, the Global South remains ensnared in a web of borrowing and austerity. In recent years, the inevitable widening gap between the West and the rest of the world has become unsustainable.
A comprehensive overhaul of international debt policies is long overdue. The current case-by-case basis of the G20 Common Framework is ineffective, failing to offer the predictability necessary for substantial debt relief. A more systematic approach is essential, one that includes a multilateral sovereign debt restructuring mechanism. This would facilitate fair and equitable treatment across all creditors, ensuring that countries can prioritize investments in green growth and climate resilience without being shackled by debilitating debt service obligations.
Moreover, to address the urgency driven by climate priorities that have languished under underfunded commitments, a dual-pillar approach is necessary. Countries with dire debt situations require comprehensive restructuring involving all forms of international creditors — private, bilateral and multilateral. This should be reminiscent of the large-scale debt relief initiatives of the early 2000s, adapted to the current needs of climate and development investments. For less-indebted nations, enhancing credit and providing debt suspension through multilateral institutions could offer more fiscal space and reduced capital costs, enabling them to meet climate and development goals more effectively.
Simultaneously, geopolitical tensions and rising protectionism pose significant risks to global cooperation. Multilateral dialogue between major global powers like the US and China is crucial to navigating these geopolitical frictions. Additionally, fostering a supportive environment for affordable lending from multilateral development banks and new issuances of special drawing rights can provide the necessary liquidity for emerging markets.
Such innovative, equitable solutions are imperative — not only to address the financial disparities exacerbated by climate disasters but also to stave off the social instability that unchecked debt crises are bound to trigger. Thus, an urgent, holistic and collaborative strategy is essential for a truly balanced global economic order, before the West ultimately drowns the rest.

• Hafed Al-Ghwell is a senior fellow and executive director of the North Africa Initiative at the Foreign Policy Institute of the Johns Hopkins University School of Advanced International Studies in Washington, DC. X: @HafedAlGhwell