This week I was invited to a round-table discussion at the Arch Bishop’s residence on the perilous debt situation for some poor countries in the Global South. What are the causes? What are the remedies? Here are my notes, prepared for the discussion.

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Arch Bishop’s Residence, Uppsala, June 1, 2026

Thank you for the invitation.

This is an extremely important topic. But also difficult – at the intersection of ethics and economics. A warning: this is not my field of expertise. But let me give a few general remarks about economic consequences and then dive into possible actions.

A positive starting point

It is important to note that Emerging Markets (EM) is not a homogenous group – and definitely not a problematic group as a whole:

• GDP growth is higher than for Developed Markets. Productivity growth also, as catch-up is in play
• Positive demography – contrasting with shrinking working populations in DM (and many countries in Asia)
• EM will increase their share of global GDP and population
• This positive development is visible also in financial markets. Sovereign debt is on average lower than for DMs. And interest rate spreads have been shrinking in recent years as EM as an asset class has turned more interesting.

So, when we discuss debt on EM or the Global South, it is important that we don’t paint everything in black!

Nonetheless

A group of (mainly) Sub-Saharan countries have severe debt problems. To several of them, this is the worst debt crisis in history – and not only because the level of debt but because of high interest rates and the costs of servicing the debt.  

According to the IMF, 18 African countries are currently in or at high risk of debt distress. High levels of debt and (in some cases more importantly) high rates means they risk getting stuck in vicious circles: increasing costs of debt service crowd out investments in infrastructure, education and health – making recovery even harder.

To quote the former Swedish PM Göran Persson, in almost biblical terms: “He who is in debt is not free”.

Several of these countries have been disproportionately hit by global trade conflicts, war and ensuing inflation. This means they are seen as high-risk countries and become even less interesting as destinations for investments. This has started a shift from external to domestic debt, with lower currency risk but often with shorter maturity, which creates new challenges.

Is this risk assessment fair?

Yes and no. A high-risk premium on EM as a group would be hard to justify – but this not what we see. What we see is actually lower risk on most EM but lingering high risk on a poor and vulnerable group of countries.

We need to realise that some countries are high-risk; at least to private, commercial investors. They often suffer from

• Incompetent institutions and corruption
• Slow growth, where investments are often wasted on white elephants

Private lenders (who manage our pension money!) are obliged to take that into account. But the situation may be slightly different for lending from states (with aid goals) and international organisations (WB).

What can be done to improve their situation?

The world has changed

First, we need to realise that the environment for policy reforms has deteriorated in recent years.

• More private lending (on commercial terms). This can actually be seen as a good thing for the EM as a whole as it reflects that they are more commercially successful. But it means debt is more difficult to renegotiate for those in dire straits.
• More private lending also often means more complex deals – which are more difficult to renegotiate.
• Borrowing is less via banks and more often via bond markets, amplifying complexity and difficulties to renegotiate.
• On a global scale, bond yields are not falling anymore. Instead, they seem to establish themselves at a slightly higher equilibrium level; the main reasons are higher debt levels and chopped-up supply chains and trade wars.
• There is no functioning Paris Club anymore – you cannot resolve problem in one room with the big lenders. It is much more difficult to gather the big bond market lenders and make them accept a common view of the situation.
• UN, World Bank & IMF are being undermined, by US but also by Western countries’ refusal to allow China, India et al their rightful place. Their legitimacy has suffered, as well as their balance sheets.
• China’s rise is crucial. China is now the biggest sovereign lender, using debt as a geopolitical weapon. Deals are often opaque since big banks are state-controlled.
• A political backlash in Western countries against development aid contributes to political obstacles in helping poor countries.

Difficult to manoeuvre for a small country

A general problem with debt relief is “moral hazard”: the risk that haircuts encourage lax fiscal discipline and sloppy institutions. This applies also today – while a refusal to consider more benign borrowing conditions may push more countries into China’s camp.

In this situation “debt relief” is more complex than before, it can mean many different things. Debt write-downs and debts swaps are probably easier to arrange for sovereign lending than private – but we need to realise that government debt (i.e treasuries, gilts, bunds etc) is the core of international capital markets. Reform must not rock that edifice…

Allt this makes it difficult for a country like Sweden to move alone. We badly need international cooperation – but in this situation with geopolitical conflicts and great power rivalry this is much more difficult than before. Consequently, Sweden needs to work with a coalition of the willing

What can be done?

Nonetheless, a number of suggestions and proposals have been put forth. Some are good. Some come with caveats and side effects.

Let’s see what role Sweden could play in those:

1. Sweden can push for write-down of WB and IMF debt and more fire power for IMF. Yes! But that would necessitate a recapitalisation of both – which the US will not accept. Or a significantly increased Chinee influence. A risk: repercussion on private, commercial markets?
2. Reorganise debt, e,g through debt swaps? Yes! We can help organise buy-backs of a country’s existing sovereign debt and replacing it with new loan obligations, preferably backed by political risk insurance from development finance institutions. This means designing guarantee tools suited to countries in debt distress. If successful it could lead to lower debt service costs and – ideally – investing more long-term. But once again: We need to convince other countries, as well as the IMF and the World Bank etc to accept such a strategy.
3. No bail-out policy? Stiglitz et al have claimed that loans from multilateral institutions often are used as de facto bail-outs for private creditors (by providing hard currency to repay them). Thus, this should be prohibited. The proposal sounds nice, but is risky, since it could push private market rates even higher.
4. Avoid short-termism? Sure. This is possible for government lending – but how to affect private credit? Debt swaps again to lengthen maturity? Accept capital-account regulations to limit destabilising inflows and outflows? The flip side is that this could diminish private lending.
5. Make the international financial markets more efficient and less crisis prone. Great idea! But how? This has been debated since the Global financial crisis almost 20 years ago. Tobin tax? Forget it! Split banks into casinos and utilities? Forget it! Make the system more stable by tightening regulations and capital requirements? Yes, and this has been done – but is now being undone by the US administration (and some other important countries are following suit).
6. Work for improved restructuring international resolution process? Yes. A new HIPC process (Heavily Indebted Poor Countries, but under a new name)? It did work fairly well then; but now the cost of servicing debt has risen again. But how do we get US/UK/EU on board? Sweden can push, but the big nations need to be on board.
7. Try to stop vulture funds. Yes! But we need to align with NY and London – which is difficult
8. New credit rating agencies? Difficult. Who will build them? Can they be trusted? For a while they may be seen as partisan. Consequently, there is a risk that an already fragile international financial system will become even more fragile by creating two competing sets of assumptions about risk. Even if they get built, it will take time before they gain trust – can only be gained by good work (which takes time).
9. Improved foreign aid? Absolutely! If we can get political accept – domestically and international. But aid is probably more efficient and politically viable if it concentrated to build institutional reform, fiscal rules and improve tax systems among borrowers. And of course to health and education. An important task!
10. Help them build efficient domestic capital markets? Absolutely! Here Sweden is a global leader. We should be able to help countries build modern payments systems, and expand the domestic investor base to include pension funds and insurance companies.

Final words
So there are things than can and should be done. But international cooperation is difficult. Nonetheless, there are some things Sweden can do, not least to help build resilience in borrowing countries.

Furthermore: All those remedies presuppose reform among borrowers: Attainable fiscal targets, improved efficiency of governments, root out corruption and nepotism, improve tax revenue and tax collection.

This is necessary to lower the perception of risk

So: we need cooperation among lenders and borrowers!