AUGUST 2024
Reintroducing
Concessional Loans into
the Development Toolbox
By Dan Runde, Rafael Romeu, and Austin Hardman
Introduction
Global indebtedness has soared to unsustainable levels and requires a long-term solution, not an
endless series of bailouts. The process for helping indebted countries is inecient and does not serve
U.S. interests. To be part of the solution for countries facing a debt crisis, the United States must refresh
its lending practices and learn from the mistakes and successes that China has made in its lending to
the Global South. It is time to seriously reconsider how the United States may be a part of the solution.
Is there a role for concessional loans in the U.S. development portfolio? Is the current U.S. stratey of
funding foreign assistance exclusively through grants always the right one? Tethering development
nance to U.S. foreign policy objectives while producing scally sustainable outcomes is a component
of great power competition with China that has yet to be satisfactorily assessed.
Between 2010 and 2022, government borrowing increased by almost 4 times in Asia and the Pacic, 3
times in Africa, 2.5 times in Europe and Central Asia, and 1.6 times in Latin America and the Caribbean.
The Covid-19 pandemic, Russia’s invasion of Ukraine, and rapid rate hikes by the Federal Reserve and
other major central banks have worsened the scal outlook for many deeply indebted low- and
middle-income economies, particularly commodity-exporting countries vulnerable to market volatility.
According to the International Monetary Fund (IMF), global public debt hit a record $97 trillion in
2023, with developing countries shouldering a disproportionate amount relative to their share of the
global economy.
As emerging markets default on their loans in record numbers, the institutions of the current
multilateral debt architecture—including the IMF, Group of 20 (G20), and Paris Club—have struggled
to provide comprehensive or timely debt service relief, concessional nancing, and debt restructuring.
