How Does Debt Keep Former Colonies Poor?

European empires left many colonies with economies organised around exporting a few commodities, importing manufactured goods and using infrastructure designed for extraction rather than integrated development. After independence, governments needed foreign currency for machinery, fuel and medicines. Loans denominated in dollars, euros or other external currencies made repayment dependent on volatile export earnings and exchange rates.

When US Federal Reserve Chairman Paul Volcker raised the federal funds rate from an average 11.2% in 1979 to 16.4% in 1981, dollar debts became far more expensive. Commodity prices weakened, currencies depreciated and the 1982 Mexican default marked a wider debt crisis. The IMF and World Bank supplied emergency loans through structural adjustment programmes, officially intended to restore balance-of-payments stability and competitiveness. Conditions commonly required spending cuts, subsidy removal, currency devaluation, privatisation and reduced trade barriers.

These measures prioritised repayment but often reduced wages, employment and access to public services. Selling state assets could also transfer utilities, mines and land to foreign investors. Debt therefore works alongside the systems documented in Ongoing Exploitation, not as an isolated accounting problem.

“The debt cannot be repaid, first because if we don’t repay, the lenders won’t die. That is for sure. But if we repay, we are going to die.” — Thomas Sankara, 1987, address to the Organisation of African Unity

The World Bank reported that low- and middle-income countries’ external debt reached $8.8 trillion in 2023, while their debt-service payments reached $1.4 trillion in 2023. The poorest states eligible for the International Development Association paid a record $96.2 billion in 2023, including $34.6 billion in interest. These are gross payments, not a claim that every dollar was illegitimate.

Source and publication year	Population or measure	Estimate for stated year	What it shows
World Bank, International Debt Report 2024	Low- and middle-income countries	$1.4tn debt service in 2023	Record principal and interest transferred to external creditors
World Bank, International Debt Report 2024	IDA-eligible countries	$96.2bn debt service in 2023	Rising pressure on the poorest borrowers
UNCTAD, A World of Debt 2024	Developing countries	$847bn net interest in 2023	Domestic and external public debt together absorb fiscal resources
UNCTAD, A World of Debt 2024	Developing countries	3.3bn people in 2023	More people lived where interest exceeded health or education spending
Jubilee Debt Campaign, 2020 analysis	Developing countries	$4.2tn net debt transfer, 1980–2017	Cumulative repayments exceeded new lending over the period

UNCTAD’s broader public-debt method found that developing countries paid $847 billion in net interest in 2023, up 26% from 2021. It estimated that 3.3 billion people in 2023 lived in countries spending more on interest than on either health or education. World Bank and UNCTAD totals differ because they cover different country groups and debt categories; they are complementary, not interchangeable. Definitions and downloadable indicators belong beside the archive’s wider Data.

Debt has repeatedly enforced colonial hierarchy. France recognised Haitian independence in 1825 only after King Charles X imposed an indemnity of 150 million francs, reduced to 90 million francs in 1838. Haiti borrowed from French banks to pay France, creating a double burden. A New York Times investigation in 2022, using historical accounts and alternative return assumptions, estimated Haiti’s cumulative loss at $21 billion to $115 billion in 2022 US dollars. The range reflects disputed counterfactual investment returns, not uncertainty that payments occurred.

Britain’s Slavery Abolition Act of 1833 authorised £20 million in 1835 to compensate slave owners, not enslaved people. The loan used to finance compensation was not fully redeemed until 2015, according to the UK Treasury. This was sovereign borrowing for dispossessors, while formerly enslaved people received no reparations.

Postcolonial net-transfer calculations also vary:

• Jubilee Debt Campaign calculated that developing countries paid creditors $4.2 trillion more than they received in new loans between 1980 and 2017.
• Jason Hickel, Dylan Sullivan and Huzaifa Zoomkawala estimated that unequal exchange transferred $2.2 trillion in 2017 from the global South to the global North, and $62 trillion during 1960–2017 at prevailing prices; adding lost growth raised their counterfactual estimate to $152 trillion during 1960–2017.
• World Bank statistics put low- and middle-income external debt at $8.8 trillion in 2023, but this is a stock of obligations, not an estimate of colonial extraction.

Debt is one channel within a larger system: unequal prices, profit repatriation, tax avoidance and illicit financial flows can exceed incoming aid while remaining absent from headline debt stocks.

The unequal-exchange estimates are broader than debt and methodologically contested. They matter because export earnings used for repayment are themselves shaped by global pricing power, ownership and value chains.

The IMF, World Bank, creditor governments and many economists reject the claim that lending inherently impoverishes borrowers. They argue that loans can fund productive investment, smooth crises and raise growth when institutions, project selection and debt management are sound. The IMF describes conditionality as a safeguard for restoring macroeconomic stability and ensuring repayment, not a continuation of colonial rule.

There is evidence for variation. The World Bank and IMF’s Heavily Indebted Poor Countries initiative, launched in 1996 and supplemented by the Multilateral Debt Relief Initiative in 2005, had delivered more than $100 billion in debt relief to 37 countries by 2023. Supporters cite increased fiscal space and reduced debt ratios. Critics answer that eligibility required years of approved reforms, relief excluded many countries and debt accumulated again under commodity shocks, private lending and climate disasters.

Disagreement centres on causation and accounting. Creditors emphasise corruption, war, weak tax systems and irresponsible borrowing. Critics identify lender responsibility, odious debts, colonial borders, externally imposed austerity and contracts that socialise losses while protecting banks. Both domestic elites and foreign institutions can benefit: public officials sign opaque loans, while lenders earn fees and interest despite foreseeable insolvency.

China’s role is also disputed. Deborah Brautigam and Meg Rithmire argued in 2021 that evidence does not support a general Chinese strategy of deliberately entrapping states to seize assets. China is nevertheless a major bilateral creditor, and confidentiality clauses can obstruct scrutiny. Rejecting a universal “Chinese debt-trap” thesis does not absolve Chinese, Western, multilateral or private creditors of coercive practices.

The practical conclusion is not that all debt should disappear without examination. It is that legitimacy, human consequences and creditor conduct must be audited. Debts incurred by dictators, colonial administrations or corrupt officials without public benefit may meet the doctrine of odious debt, articulated by Alexander Sack in 1927, although it is not a settled rule of international law.

Governments and campaigners propose independent debt audits; cancellation of illegitimate and unsustainable obligations; automatic payment suspensions after disasters; grants rather than loans for climate loss and damage; public creditor registries; and binding sovereign-bankruptcy rules. Zambia’s default in 2020 and restructuring agreement with bondholders in 2024 demonstrated how negotiations can last years while creditors dispute comparable treatment.

Cancellation alone cannot end dependency if countries remain reliant on commodity exports, imported essentials and foreign-controlled finance. Durable change also requires progressive taxation, controls on illicit flows, local processing, public services, regional trade and reparations for documented colonial extraction. Those connections are mapped across Ongoing Exploitation, with methodological cautions in Data.

The governing test is straightforward: if servicing a debt predictably denies basic rights, preserves colonial transfers or rewards reckless lending, repayment at face value is not economically neutral. It is a distributional decision favouring creditors over populations who often neither authorised nor benefited from the loan.

• World Bank, International Debt Report 2024
• UNCTAD, A World of Debt 2024
• IMF, Factsheet: IMF Conditionality
• The New York Times, “The Root of Haiti’s Misery: Reparations to Enslavers” (2022)
• Hickel, Sullivan and Zoomkawala, “Plunder in the Post-Colonial Era” (2021)
• Brautigam and Rithmire, “The Chinese ‘Debt Trap’ Is a Myth” (2021)