Sovereign debt levels have reached record highs, with many low- and middle-income countries in or at risk of debt distress. This hampers economic development, limits the fiscal space available for social and environmental needs, and stands in the way of the green transition in many countries. Combined with high interest rates, critical debt levels also endanger the stability of the global financial system and pose a concrete risk, with the capacity to trigger the next major financial crisis. Major economies, such as the US, the EU, and China, have also reached debt-to-GDP ratios that are historically high.

While progress has been made in international debt restructuring—especially with China’s participation in the G20 Common Framework—advances remain too slow and insufficient. Additionally, the evolving creditor landscape over the past two decades has further complicated negotiations. Without concrete reforms, inclusive growth in developing countries will remain out of reach.