Frequently Asked Questions
How big is global debt?
The whole globe does not have any debt – the Earth does not owe Jupiter! Total debt owed by governments, companies and individuals to individuals, companies or governments in other countries is $101 trillion as of 2019. This is equivalent to $13,000 per person, or 115% of global income. Through the early 2000s it grew to 113% of global income in 2007, before falling slightly after the global financial crisis of 2008. It has since grown to a similar level, prior to the Covid crisis.
When should debts not be repaid?
Loans can be a useful way for a lender to share resources and enable investment that allows the loan to be repaid. However, lenders can knowingly lend money for a bad project, or changes in circumstance can mean the project fails. In such cases, it is only fair that the lender shares in this cost, rather than all of the burden being put on those who have borrowed the money, whether it is a country or an individual. This happens all the time with private companies but should also apply to governments.
In addition, debts can be illegitimate if the people paying them did not have a say in the decision to take them out and/or were harmed by what the loans enabled. For example, the UK government lent the Indonesian dictatorship of General Suharto money to buy tanks and warplanes that were then used to violently repress Indonesia’s own people. After the dictatorship fell, the UK insisted that the Indonesian people continue to pay back the debt.
Finally, if there has to be a choice between repaying debt to a rich lender and meeting basic needs such as food, water, shelter, or basic services such as healthcare, it can only be right for the money to be spent on protecting human rights and providing for basic needs. Otherwise, debt is being prioritised over life itself.
What is a “debt jubilee”?
A “debt jubilee” is a celebration when unjust debts are cancelled. The word ‘Jubilee’ comes from the Jewish sacred writings (the Old Testament of the Christian Bible). It was a periodic celebration in ancient times when debts were cancelled, slaves freed, land returned to its original owners and fields left fallow.
All of these actions were linked. For peasants in the Middle East at the time, if they had a bad harvest, they would get into debt. Then in order to pay this debt they would be forced to sell their land. And finally they would have to sell themselves and their family into slavery. Cancelling debt and freeing slaves was undoing this injustice.
There is historical evidence for debt jubilees – cancellations – in Babylon, dating back almost 4,000 years. Such cancellations happened in response to peasant uprisings.
The idea of a debt jubilee has continued to inspire people through history. In the 1990s, campaigners for debt cancellation for countries in the global south decided to call for a Jubilee for the year 2000. Jubilee Debt Campaign is the organisation in the UK which has continued and evolved that campaign.
Does Britain have a debt crisis?
Yes, but not the one that is usually reported. The UK government’s debt is 100% of national income, but of this one-third is owed to the UK government itself – the Bank of England – and another 45% is owed to other people and companies in the UK, such as pension funds and savers. Only 20% is owed outside the UK, and the UK government’s debt payments outside the country are just 3% of its revenue, one of the lowest levels of any ‘rich’ country.
Since the global financial crisis of 2008, and even more so since the coronavirus crisis began, the UK government has been able to borrow at record low interest rates (0.1% fixed for 10 years in mid-2020) making it the perfect time to invest in measures such as public housing and renewable energy which will save money over time.
However, the debt of the UK’s private sector is very worrying. Between the late-1980s and 2008 the debt of the private sector grew from 200% of national income to 500%. This huge debt, especially that of banks, helped cause the financial crisis of 2008. It then fell to 400% of national income, but was rising before the coronavirus crisis.Read more
Facing personal debt problems?
Jubilee Debt Campaign is focused on campaigning and advocacy on debt issues. We do not provide advice services. If you are facing personal debt problems and looking for help and advice there are several free advice services that you can access:
Step Change Debt Charity can help you to make a personal debt repayment/ management plan on the phone.
National Debtline can help you to budget and prioritise your debts.
If you’re a student and worried about debt check out specialist student advice on the NUS website.
For a compilation of telephone debt advice numbers click here.
Did impoverished country debt get sorted in 2005?
Following the global Jubilee campaign – a massive, decade-long international campaign driven by people in affected countries in the global south – a debt relief scheme was created within the IMF and World Bank called the Heavily Indebted Poor Countries (HIPC) initiative. This had many problems with it, including that countries had to implement destructive IMF and World Bank free market economic policies to qualify for debt relief, and that only the most impoverished and heavily- indebted countries could qualify.
For the 36 countries which completed the scheme between 2000 and 2015, a total of $130 billion of debt was cancelled. This was not the full amount of debt owed by those countries, but it did significantly reduce debt payments for most. There is evidence that the revenue governments saved went into public service provision. In countries that had debts cancelled, births attended by a skilled professional increased from 37% in 2000 to 50% in 2012. Children completing primary school increased from 45% in the 1980s and 1990s to 66% by 2012.
However, many heavily-indebted countries were excluded from the scheme, and have ongoing debt crises which are undermining public services, poverty alleviation, and sustainable development. These include Jamaica, Sri Lanka, Tunisia and Pakistan. Moreover, the one-off debt relief scheme did nothing to address the underlying reasons behind debt crises, such as dependency on a few commodity exports, unregulated and opaque lending, tax dodging by elites and multinational companies, and the lack of a global debt restructuring mechanism to ensure lenders pay the costs of reckless lending, rather than being bailed out.
Following the global financial crisis in the rich world in 2008, loans to impoverished countries boomed. Today some countries which had debt cancelled under HIPC, such as Ghana and Mozambique, are back in debt crisis. Many more are at risk of being so.
What is the difference between public and private debt?
Public debt is debt owed by a national government or other public body, such as a local authority. This can be owed to a range of institutions, including banks and other private companies, other governments, and multilateral institutions such as the World Bank. Public debts can cause an economic crisis if they lead to large amounts of money leaving a country in debt payments, and a lack of money being available for funding public services.
Private debt is debt owed by any people or institutions who are not the government – whether individuals, households or companies. Debts owed by the private sector can also cause economic crises, as was seen in East Asia in the 1990s, and the US and Europe in 2008 with the global financial crisis.
When a private debt crisis happens, it can also lead to the public taking responsibility for debts that were originally taken out by the private sector. This can be directly, for instance in the UK and Ireland in 2008 when the governments took on many of the debts of private banks. It can also be indirectly, for example when an economic crisis happens as a result of too much private debt tax revenues fall which means governments have to borrow more to fund their spending and keep the economy going. If they can borrow at a reasonable interest rate, it usually makes sense for governments to borrow more during an economic crisis to fund more spending, to make up for the fall in spending by the private sector.
What is a vulture fund?
A vulture fund is a company which seeks to make large profits out of a debt crisis. They do this by buying debt of a government when it is struggling to pay, or has stopped paying. At this point the debt can be bought cheaply, at much less than the face value, because it is uncertain whether and how much a government will be able to repay.
Vulture funds then wait for other creditors to agree to reduce the amount of debt owed. Once this has happened they then sue the government for the face value of the debt they own. If they are successful, they make a huge profit on what they paid for the debt. Vulture funds can do this because there are no internationally agreed bankruptcy rules for governments.
Most international debts are owed under New York or English law, so many vulture fund cases have been brought in London courts. This included cases against Liberia and Zambia after they qualified for debt relief in the 2000s. In 2010 Jubilee Debt Campaign got a law passed in the UK parliament which limits the amount for which vulture funds can sue Heavily Indebted Poor Countries (a grouping of 40 countries that were in debt crisis). However, this only applies to their old debts, so over time it will become obsolete.
One of the most famous vulture fund cases was brought by Elliot Management and Aurelius Capital against Argentina. They bought Argentinian debts after the government defaulted in 2002. They then refused to accept a debt restructuring agreed by 93% of Argentina’s other creditors, and instead sued in New York. They got various court judgements in their favour, and eventually the Argentinian government gave in and paid them in full. The vulture funds’ profit from the debt is estimated to be 1,500%.
Vulture funds do not always have to sue to make money. In 2013 vulture funds refused to take part in a debt restructuring agreed by most of Greece’s private creditors. However, because Greece did not want to be taken to court in London, they continued to pay the vulture funds in full, giving them a large profit on what they paid for the debt.
What is austerity?
Austerity is a government policy to cut public spending or increase taxes. Often it is claimed to be needed because the government is spending more than it is earning. However, at times of crisis, austerity can make the situation worse, not better. By cutting spending or increasing taxes, more money is taken out of the economy, thereby increasing unemployment and worsening economic conditions, as well as increasing poverty.
An alternative approach is for governments to respond to a crisis by spending more or cutting taxes – known as a stimulus – in order to help replace falls in spending by the private sector. This reduces the economic downturn and enables economic recovery. Once the economy is recovering and the overall tax base grows taxes can be increased or spending can grow at a lower rate than economic growth.
Sometimes governments have too much debt – particularly high-risk debt owed outside a country – to be able to respond to a crisis by borrowing more. However, austerity can still worsen the situation in such cases, as was the case with Greece from 2010. Instead an alternative is to stop or reduce debt payments which leave the country, enabling more money to remain in the domestic economy. In Argentina in 2002, after four years of crisis, recession, austerity and increasing poverty, the government defaulted on its debt, ie stopped making repayments. After doing so, the economy soon started recovering and poverty fell.