The impact of public debt on sustainable development

The impact of public debt on sustainable development.

Sustainable development is an internationally recognized economic and social concept, as the United Nations has developed a road map for achieving environmental, social and economic development worldwide. Its primary goal revolves around improving living conditions for all members of society, developing means and methods of production, while managing them in ways that preserve the planet's natural resources without harming them. The Sustainable Development Goals include many aspects such as economic, social and environmental aspects. To achieve the Sustainable Development Goals requires huge investments in infrastructure and human capital development. There is also a need to invest significantly in the manufacturing sector and achieve economic diversification to avoid complete dependence on a single sector. However, it is worth noting that the ability of governments to provide the necessary financing to implement sustainable development processes may be limited. Therefore, financing is a very important aspect for achieving sustainable development.

Assuring debt at unsustainable levels, excess debt can negatively impact economic growth and expose the poor to risks. Therefore, the use of debt must be transparent and used to serve investment projects with a return that exceeds the cost of the investment. A debt instrument is effective and achieves the Sustainable Development Goals if it is used sustainably and directed towards achieving maximum benefits for society. On the other hand, the use of debt in consumer behavior that causes damage to the national economy must be avoided. Debt risks have increased in recent years, especially in emerging markets and low-income countries. Public debt is defined as the amount a country owes to lenders, and this can include individuals, businesses, and even other governments.

Many developing countries currently rely on financing sustainable development programs through debt, whether through loans from international institutions or other governments. Debt financing of these programs is beneficial if it is transparent and directed towards projects of interest, where returns are generated that cover the cost of the debt. Most developing countries resort to this method due to the lack of sufficient funding to achieve sustainable development.

Before the coronavirus outbreak, the level of debt was at unprecedented levels in emerging market and developing economies. The Corona pandemic has pushed many countries into a critical state of debt. The World Bank has developed a strategy for managing public debt in cooperation with the International Monetary Fund. The plan includes four elements to reduce debt. The elements are as follows:

  • Debt suspension.
  • Reduce debt.
  • Debt settlement.
  • Debt transparency.

It provides technical assistance and guidance for the advancement of the state and efficient management of debt to achieve sustainable development goals.

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