The Debt Trap: Why Creditors Come First, Children Last

Many countries in the Global South are facing a stark reality: their governments must choose between paying off creditors and investing in their children’s education. This is not a matter of fiscal mismanagement or bureaucratic incompetence; it is a symptom of a broken global financial system that prioritizes lenders over those who need help most.

A UNESCO report highlights the scale of this crisis, with 113 countries spending more on servicing debt than educating their people. In low-income countries, debt payments are nearly four times education expenditure. These figures reveal a stark power imbalance favoring creditors over citizens.

The consequences of prioritizing debt repayment are all too visible: overcrowded classrooms, deteriorating school buildings, teacher shortages, unaffordable school fees, and children leaving education prematurely. Yet these outcomes are often described as “funding gaps” or “failures of domestic governance,” implying governments have freely chosen to neglect their schools.

The reality is more complex. Many governments operate within an international financial order that severely restricts their ability to choose. The World Bank reports that developing countries transferred $741 billion more to external creditors in principal and interest between 2022 and 2024 than they received in new financing. This was the largest net debt outflow in at least 50 years.

The flow of money is often described as a one-way street, with wealth flowing from debtor countries to bondholders, commercial banks, multilateral institutions, and wealthier creditor governments. But when it comes to education, developing countries are portrayed as beneficiaries of Western generosity rather than as debtors struggling to meet their obligations.

Education is not just another item of government consumption; it is an investment in a society’s future capacities. Cutting it may make debt payments easier today, but it will weaken productivity, public revenues, and social resilience tomorrow. Debt contracts, however, are treated as binding obligations whose breach can trigger credit downgrades, capital flight, lawsuits, and exclusion from financial markets.

The right to education carries no comparable machinery of enforcement. No ratings agency downgrades creditors when a country cannot afford enough teachers. No financial penalty is imposed on bondholders when debt service forces children out of school. Markets do not panic when classrooms collapse.

The system disciplines governments for failing creditors, not for failing children. This is why proposals to expand debt-for-education swaps are welcome but ultimately insufficient. These initiatives can produce tangible gains, but they leave untouched the principle that creditors are entitled to repayment unless they voluntarily concede otherwise.

The question becomes how to persuade creditors to permit a little more education, rather than why their claims should take priority in the first place. This is especially urgent because education aid is also falling: UNESCO projects that international assistance for education could decline by as much as 30 percent between 2023 and 2027.

Debtor countries are being squeezed from both sides: aid is retreating while debt payments continue. The familiar recommendation that developing countries should mobilize more domestic resources is inadequate. Progressive taxation and reduced corruption matter, but additional revenues will not transform education systems if they are immediately diverted towards debts contracted at high interest rates or made more expensive by currency depreciation.

Nor can the problem be solved by demanding ever more austerity. Education budgets consist largely of recurring expenditure, especially teachers’ salaries. When governments are instructed to freeze public-sector wage bills, they cannot solve teacher shortages or expand access, however often international institutions proclaim education a priority.

A more serious response would begin with large-scale debt cancellation for countries in distress, automatic suspension of payments during economic and climate emergencies, far cheaper concessional financing, and a fair multilateral mechanism for restructuring sovereign debt. At present, debt negotiations are fragmented among private creditors, bilateral lenders, and international institutions.

Debtor governments must bargain with powerful financial actors while trying to avoid being punished for seeking relief. A binding United Nations framework for sovereign debt could establish shared rules, require both borrowers and lenders to act responsibly, prevent holdout creditors from obstructing restructuring, and make social rights central to assessments of what a country can genuinely afford to repay.

The world cannot continue to prioritize the interests of creditors over those of its most vulnerable citizens. The time has come for a fundamental shift in the global financial order, one that recognizes education as a right, not just an item of government consumption. Anything less will only exacerbate the debt trap, condemning millions of children to a future without access to quality education.