UN-ESCAP urges overhaul of debt assessment models

Rising debt limits development spending.

Global public debt is projected to reach 115% of GDP by 2026, raising concerns about its impact on economic stability and development. As fiscal space tightens, governments face pressure to balance rising obligations with the need for long-term growth investments.

Hamza Ali Malik, Director of the Macroeconomic Policy and Financing for Development Division at UN-ESCAP, warned that higher debt servicing costs are crowding out critical spending.

“The implication of rising debt levels and rising debt servicing cost is relatively less fiscal space for governments to invest in development in general, whether it's infrastructure, education, health services, Sustainable Development Goals, climate ambitions, and so forth,” he said.

While high debt levels raise alarms, Malik emphasised that context matters. “High levels, actually on their own, are not necessarily bad. What matters is how the money raised is being spent,” he explained. “We need to look into the specificities of each country level... rather than imposing more generic policy implications that every country should do ABC things.”

Malik stressed the need to distinguish between the sources of debt distress. If debt is rising due to productive development investments, that should not be penalised. “So the distinction needs to be made in the sources of debt distress as a first step and then devise economic policies,” he said.

For Asian governments, especially in today’s economic climate, Malik advises a reassessment of debt sustainability frameworks. “The current approaches used by the IMF and World Bank do not incorporate the long-term investment needs for sustainable development goals and climate ambitions,” he said.

“If the countries are facing debt distress due to temporary liquidity shocks, then the approach has to be different,” he said. Countries in this position may benefit from liquidity support without needing harsh fiscal consolidation measures.

“We need to recognise that a lot of developing countries need significant investments in sustainable development goals and climate ambitions,” he said. “The international development community should provide these resources upfront... rather than dealing with the consequences once debt increases.”