Private Investors Set to Gain Billions from Countries in Debt

Countries grappling with severe debt distress are poised to deliver substantial profits to major asset management firms such as BlackRock and JP Morgan, according to new research from Christian Aid and Debt Justice. The analysis reveals that funds managed by these firms could collectively earn an estimated $60 billion from loans to nations at high risk of debt distress.

A closer look at the data indicates that BlackRock could achieve a profit of approximately $2.1 billion from these loans. Other significant earnings are projected for Goldman Sachs at $900 million, and JP Morgan with an estimated $700 million. Funds managed by UBS and PIMCO are also expected to garner around $500 million each.

The comprehensive analysis focuses on 15 low- and lower-middle-income countries recognized by the International Monetary Fund and the World Bank as being at high risk of debt distress. These nations, struggling to meet their financial obligations, are often forced to cut spending on vital services such as health and education in order to service their debts.

Private lenders currently hold approximately 39 percent of the debt of developing countries, as per the analysis of World Bank statistics. In comparison, multilateral lenders, including the World Bank and the IMF, own around 34 percent, while Chinese lenders account for 13 percent and bilateral loans from other governments make up 14 percent.

The methodology employed in this analysis relies on publicly available data regarding bond ownership, representing approximately 23 percent of bondholders. It compares potential profits from loans to these struggling nations against hypothetical earnings from lending to the U.S. government, which serves as a benchmark for government bonds.

Tim Jones, policy director at Debt Justice, criticized the role of asset managers, stating, “Asset managers are investing money on their clients’ behalf. But the money does not end up in these funds by accident.” He emphasized the need for these financial institutions to participate in legislative changes aimed at ensuring all private creditors engage in debt relief efforts.

The ongoing debt crisis has reached alarming levels. Recent findings from the IMF indicate that over 30 countries are currently experiencing or are at high risk of debt distress. On average, developing nations allocate 15 percent of their government revenue to servicing foreign debts, a significant increase from just 6.6 percent in 2010.

Historically, many of these countries borrowed substantial amounts during the early 2010s when interest rates were low. However, global events—including the COVID-19 pandemic, rising energy prices following the invasion of Ukraine, and the impact of climate change—have caused the cost of servicing these loans to surge. As a result, many developing countries now face their highest debt levels since the crises of the 1980s and 1990s.

The disparity in debt servicing has become stark, with approximately 3.3 billion people living in nations that spend more on debt payments than on essential services such as education and health. Since 2022, data has shown that developing countries are paying more to creditors than they are receiving in new loans, leading to increasing financial pressures.

For instance, Nigeria is projected to pay an average of $13 billion annually to external private creditors from 2025 to 2030, a figure comparable to its climate strategy budget aimed at enhancing solar power accessibility and transitioning to clean cooking fuels.

The conversation around addressing this debt crisis has intensified, with calls for more effective debt relief mechanisms. Indermit Gill, Chief Economist at the World Bank, noted that sovereign borrowers should receive protections similar to those afforded to businesses and individuals under national bankruptcy laws.

The G20 introduced the Common Framework five years ago, intended to facilitate coordinated debt restructuring for low-income countries. However, since its inception, none of the four countries that applied for debt relief have seen any significant reductions in their debt burdens.

In discussions surrounding debt, some private creditors have faced criticism for hindering debt relief negotiations. For example, commodities giant Glencore has been accused of obstructing efforts to alleviate debt in Chad, while South Sudan has been sued for defaulting on loans, further complicating its financial stability.

The UK’s role is also under scrutiny, as it serves as a key financial hub where around 90 percent of debt owed by countries eligible for relief is governed by English law. Campaigners, including Jess Salter from the NGO Bond, have urged the UK government to take decisive action in facilitating debt relief, noting the need for mandatory legislation rather than relying on voluntary measures.

Despite pressure from various organizations, the UK government has been cautious, focusing on encouraging banks to voluntarily participate in debt relief efforts. Advocates argue that a legal, enforceable approach is necessary to ensure compliance from private creditors.

The ongoing challenges surrounding debt relief for developing countries highlight a complex landscape where financial interests intersect with humanitarian needs. As discussions continue, the potential for transformative reforms remains a critical topic for global development efforts.

A spokesperson for HM Treasury stated, “Tackling unsustainable sovereign debt is an important international priority. We are committed to an international financial system that supports development outcomes and helps low-income countries address their debt vulnerabilities.”