Why do Countries Pay Financial Institutions Instead of Building Schools and Hospitals?

This fact sheet from the Institute for Economic Justice examines the structural causes of the African debt crisis, the impact of high interest rates on public services, and the limitations of G20 initiatives. It argues that the crisis is rooted in a 'rigged global system' and calls for systemic reform and debt cancellation through movements like Jubilee 2025.

• African nations face significantly higher borrowing costs than other regions despite having lower total debt. While Africa collectively owes approximately $746 billion, it pays an interest rate of 9.8%, compared to 6.8% in Latin America and 5.3% in Asia. This is attributed to flawed credit ratings, weak economic conditions, and a perceived 'unexplained premium' of 1.7 percentage points likely caused by bias against African governments.
• High debt servicing costs directly undermine public welfare and development. Approximately 57% of Africans live in countries where spending on debt repayment exceeds spending on healthcare and education. This forces governments to choose between repaying creditors and investing in essential services, infrastructure, and climate change mitigation.
• The debt crisis is driven by several structural and systemic factors: colonial legacies (such as inherited debts and 'colonial taxes'), the loss of $89 billion annually through illicit financial flows (IFFs), and dependencies on imports. Africa imports 85% of its food and, in cases like Angola and Nigeria, imports 80% of its fuel despite being oil-rich, necessitating foreign currency loans.
• Climate financing often exacerbates debt rather than providing relief. For instance, 96% of South Africa's $13.8 billion Just Energy Transition Plan is provided as loans from the US and European countries, rather than grants.
• G20 initiatives to address debt have been criticized as ineffective or insufficient. The Debt Service Suspension Initiative (DSSI) only delayed payments without addressing the underlying debt burden. The Common Framework for Debt Treatments, used in Ghana, Zambia, Chad, and Ethiopia, is criticized for slow processes, lack of transparency, and the fact that China and private lenders are not required to participate.
• Under its G20 Presidency, South Africa has committed to establishing the G20 Africa Expert Panel, led by Trevor Manuel, to recommend ways to reduce debt costs. However, the document notes that the South African government has taken 'little concrete action' and the National Treasury has shown limited appetite for an ambitious debt relief agenda.
• The Jubilee 2025 campaign advocates for a comprehensive approach to debt justice, demanding the cancellation of unjust and unsustainable debts without policy conditions, systemic reform of the global financial system, and the creation of a binding debt resolution framework at the United Nations.

APA

Institute for Economic Justice (2025). Why do Countries Pay Financial Institutions Instead of Building Schools and Hospitals? https://iej.org.za/wp-content/uploads/2025/08/IEJ-G20factsheet3-African-debt-crisis-web-3.pdf

Chicago

Institute for Economic Justice. Why do Countries Pay Financial Institutions Instead of Building Schools and Hospitals? 2025. https://iej.org.za/wp-content/uploads/2025/08/IEJ-G20factsheet3-African-debt-crisis-web-3.pdf.

Wikipedia

{{cite report |author=Institute for Economic Justice |title=Why do Countries Pay Financial Institutions Instead of Building Schools and Hospitals? |date=August 2025 |url=https://iej.org.za/wp-content/uploads/2025/08/IEJ-G20factsheet3-African-debt-crisis-web-3.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{instituteforeconomicjustice2025why, author = {{Institute for Economic Justice}}, title = {{Why do Countries Pay Financial Institutions Instead of Building Schools and Hospitals?}}, institution = {Institute for Economic Justice}, year = {2025}, month = aug, url = {https://iej.org.za/wp-content/uploads/2025/08/IEJ-G20factsheet3-African-debt-crisis-web-3.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }