Parliament must act now to end the debt crisis undermining global aid
Displaced Palestinians gathered at an aid distribution point set up in the Netzarim Corridor in Gaza earlier this month (Alamy)
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The British public hasn’t lost its compassion, but it has lost trust in how international aid is delivered.
They know there is something wrong with the traditional aid model and that investing their public money should never feel like peeing into a gale force wind. People want to see fairness and a level playing field for the world’s poorest communities but know we're operating against systems that perpetuate inequality. That’s why we need to talk about debt.
Right now, 28 of the world’s poorest countries are spending more on servicing external debt than on healthcare or education. This is money that should be feeding children, training nurses, and building schools. Instead, it’s lining the pockets of creditors – banks, hedge funds and asset managers – who face no legal obligation to join international debt relief efforts. They can hold out, demand full repayment, and profit from crises.
This is not just unjust. It renders our aid efforts self-defeating. These countries are trapped in a cycle of debt, much of it exacerbated by shocks outside their control – pandemics, climate disasters, and global inflation.
Many countries now facing debt crises were performing well and maintaining fiscal discipline prior to COVID-19. But we know that when the developed world sneezed, it was the developing world that really caught COVID. And with these double standards, we know now more than ever that we cannot reasonably ask them to meet the Sustainable Development Goals while we allow a broken debt system to hold them back.
Responsible investors don’t fear fair rules, and those that do should probably close the door on their way out
This is where the UK must lead. Around 90 per cent of this debt is governed by English law. That gives the UK a unique lever to fix the imbalance. Parliament should urgently consult on – and then legislate for – measures to compel private creditors to participate in debt relief on the same terms as public lenders. Legislation like this worked before under Labour’s 2010 Debt Relief Act. It can work again.
This would come at little cost to the taxpayer, but it would unlock billions for investment in health, education and climate resilience – money desperately needed to break the cycle of poverty and instability.
I welcome the government’s recent launch of the London Coalition on Sustainable Sovereign Debt, which will bring together private sector players and policymakers to find pragmatic, long-term solutions to sovereign debt challenges. Initiatives that promote transparency and embed resilience in lending are a step in the right direction. But unless we also ensure that private creditors cannot hold out during restructurings, progress will remain piecemeal.
Dialogue is important, but so is action. That's why we must go further by enshrining fair participation in law.
Before Parliament, I worked as a development banker: I've seen the good, the bad, and the ugly of debt in developing markets. But I also know that, for all the fears of what this might mean for the City of London's pride of place as the global centre for emerging markets debt, these fears can be overblown, as they were in 2010, when Gordon Brown’s government acted to curb exploitative lending practices.
Critics warned it would scare investors away, but the opposite happened: lending to lower-income countries increased significantly in the years that followed. The truth is, responsible investors don’t fear fair rules, and those that do should probably close the door on their way out.
It’s time to rebuild trust in how we do aid. Let’s bring all creditors to the table and deliver real debt justice.
Noah Law is Labour MP for St Austell and Newquay and a member of the International Development Select Committee
