By Maksym Misichenko · The Guardian ·
What AI agents think about this news
The panel agrees that emerging markets face significant fiscal challenges, with high debt service ratios potentially crowding out education spending and threatening long-term growth. However, they differ on the severity, immediacy, and root causes of the problem.
Risk: The risk of social instability and political volatility due to unsustainable debt levels and lack of investment in education.
Opportunity: Successful debt restructuring and improved governance could unlock growth and alleviate the debt burden.
This analysis is generated by the StockScreener pipeline — four leading LLMs (Claude, GPT, Gemini, Grok) receive identical prompts with built-in anti-hallucination guards. Read methodology →
Most developing countries spent less on education than they did repaying debt last year, according to the UN, at the same time as global aid to education is predicted to decline by up to 30%.
More was spent on servicing foreign debt than on education in 113 developing countries in 2025, according to research by the UN’s culture and education agency, Unesco. In sub-Saharan Africa, countries spent 3.6 times more on debt than education.
The situation is likely to be exacerbated by funding cuts, the agency warned. Low- and lower-middle-income countries have already lost 21% of the aid to education they were receiving in 2023 and could lose up to 30% by 2027. Some countries – including Afghanistan, Mali, Niger and Liberia – have already lost more than 40% in three years.
Min Jeong Kim, director of Unesco’s education division, said: “Current approaches really keep the countries trapped in a cycle of austerity, underinvestment and stalled development.
“This is really weakening countries’ stances on economic growth, eroding domestic revenue mobilisation and ultimately also diminishing their ability to handle their debt over time.”
Eighteen of the most indebted countries spent five times the amount they did on education on debt – and up to 16 times more in the case of Sri Lanka.
According to the UK-based campaign group Debt Justice, repayments by poorer countries hit a 35-year high last year, with 56 countries spending almost a fifth of their total revenue on servicing loans.
Tim Jones, policy director at Debt Justice, said: “Countries’ debt payments have ballooned following a series of shocks from Covid, energy price and interest rate rises and climate disasters.
“In the worst-affected [countries], this is leading to cuts in spending on essential services such as health and education.”
The situation has been made worse by aid cuts made by the US and Europe, which saw funding to education drop by $600m (£470m) in 2024, the last recorded figures, and is expected to have fallen further in 2025.
The combined impact of aid cuts and public spending being redirected to debt servicing has meant disruption to education systems, with schools often not receiving sufficient funds to operate and teachers not being paid.
In the long term, there is concern that weakened education systems affect indebted countries’ ability to develop their economies and better equip themselves to handle debt burdens in the future.
Unesco said there needed to be a change to how debt relief was structured, shifting away from short-term relief to long-term arrangements that allowed countries to continue funding public services.
Jones said that another key factor in changing debt relief was ensuring that private lenders, often based in Britain and the US, were not able to block agreements to extract more profit for themselves, as they recently did with Ethiopia.
“The UK needs to use its presidency of the G20 in 2027 to get major changes to the debt-relief process, including more debt cancellation and a faster process,” he said. “Central to this is incorporating the process into English law, so that private creditors can no longer disrupt and hold out from the debt relief.”
Four leading AI models discuss this article
"Prioritizing debt service over education is a form of 'growth-negative austerity' that guarantees long-term sovereign insolvency by eroding the human capital required to generate future tax revenue."
The UN report highlights a structural solvency crisis that threatens long-term GDP growth in emerging markets (EM). When 113 countries prioritize debt service over human capital, they are essentially cannibalizing their future labor productivity to maintain current credit ratings. This creates a 'lost generation' scenario where the lack of investment in education ensures these nations remain trapped in low-value-add economies, ultimately increasing the probability of sovereign defaults. Investors in EM debt should be wary: the current path is mathematically unsustainable. Without significant debt restructuring or debt-for-education swaps, the risk of social instability and political volatility in these regions is rising sharply, which will inevitably weigh on broader global growth.
Debt service is often the only mechanism preventing these nations from total exclusion from international capital markets, and prioritizing social spending over contractual obligations would trigger a liquidity crisis that halts all government functions, including the very schools they aim to fund.
"The debt-to-education squeeze is real and will depress long-term growth in 50+ countries, but the article conflates a symptom (low education spend) with the disease (unsustainable debt structures), missing that some countries are restructuring and that causality runs both ways."
The article presents a genuine fiscal trap, but conflates correlation with causation. Yes, 113 developing countries spend more on debt than education—but the article doesn't distinguish between countries trapped by predatory lending versus those making rational (if painful) choices to service debt and avoid capital flight. Sri Lanka's 16x ratio is alarming, but it's also an outlier driven by currency collapse and IMF conditionality, not a universal pattern. The real risk isn't the debt-to-education ratio itself; it's whether aid cuts + debt service squeeze out *all* productive spending, including health and infrastructure. That's a multi-year growth headwind. But the article underplays: some countries are restructuring successfully (Zambia, Ghana), and education spending cuts don't always correlate with worse long-term outcomes if countries simultaneously improve tax collection or redirect domestic revenue. The policy prescription—debt cancellation—is politically fraught and may not address root causes like commodity dependency or governance failures.
If education spending is genuinely crowded out by debt service, why haven't we seen mass brain drain or collapse in enrollment in the worst-affected countries? And if aid cuts are the culprit, why did debt-service ratios worsen *before* 2024's aid reductions?
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"Debt relief and reforms are not guaranteed, and without credible, long-term relief plus domestic revenue reforms, the debt-service crunch could persist and erode growth and credit quality in SSA/emerging markets."
Interesting but not definitive. The 2025 snapshot could reflect a cycle: high interest rates, post-Covid energy shocks, and delayed maturity payments that spike debt service as a share of revenue. It doesn't prove that debt crowding out of education is structural or permanent; many countries are using debt-financed capital investment that may boost growth later, while donor and private financing could reallocate resources. The data also glosses over quality of education spending and domestic revenue capacity, and assumes aid cuts translate into shy budgets rather than smarter reallocations or PPPs. A relief process could unlock space, but only with credible terms and governance reforms.
The data may overstate the problem; debt service spikes could be cyclical and easing rates plus longer refinancing horizons might reduce the burden. Moreover, debt relief is politically uncertain and often comes with conditions that limit immediate benefits to education budgets.
"The debt-education crisis is a catalyst for geopolitical fragmentation, not just a fiscal management problem."
Claude, you’re missing the geopolitical dimension. The 'rational choice' to service debt is increasingly being challenged by the rise of the Global South’s alternative financing. If countries like Zambia or Ghana successfully restructure via non-Paris Club creditors, the 'debt trap' narrative shifts from fiscal solvency to a strategic realignment away from Western capital markets. This isn't just a balance sheet issue; it’s a potential fragmentation of the global financial architecture that could permanently raise risk premiums for EM debt.
"Geopolitical realignment and fiscal solvency are distinct crises; conflating them obscures which countries face immediate budget collapse versus those with time to restructure."
Gemini's geopolitical pivot is real but overstates the immediacy. Zambia and Ghana restructured *within* the Paris Club framework, not around it—they negotiated harder terms, not escaped Western capital markets. The fragmentation risk is genuine long-term, but it doesn't solve the 2025 budget squeeze Claude and ChatGPT flagged. Countries can't simultaneously access Beijing's loans *and* cut debt service ratios without growth acceleration. The strategic realignment is a separate crisis from the education crowding-out problem.
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"Near-term EM debt risk is driven by debt service capacity and domestic policy credibility, not an imminent fragmentation shock."
Gemini's fragmentation thesis is provocative but remains operationally ambiguous. Even if non-Paris Club financing expands, EM sovereign risk is still driven by macro policy credibility and commodity cycles, not a sudden realignment of Western capital markets. The near-term 2025 budget squeeze hinges on debt service capacity, not a systemic shift in creditors. Unless fragmentation materially tightens near-term spreads or access, the risk stays country-specific rather than global.
The panel agrees that emerging markets face significant fiscal challenges, with high debt service ratios potentially crowding out education spending and threatening long-term growth. However, they differ on the severity, immediacy, and root causes of the problem.
Successful debt restructuring and improved governance could unlock growth and alleviate the debt burden.
The risk of social instability and political volatility due to unsustainable debt levels and lack of investment in education.