The Devastating Impact of Debt and Interest Payments on National Economies
Interest burdens don’t just weigh heavily on the poor and middle-class families; they also crush entire nations. Countries like Pakistan and Sri Lanka are prime examples of how debt, fueled by interest payments, can bring national economies to the brink of collapse.
In the case of Pakistan, it is documented that they will be paying 62% of their fiscal revenues (the revenue the government can create from things like taxes) on making interest payments. Similarly in Sri Lanka, in 2023, it was reported they will be paying 75% of all government revenues on debt payments.
It begs the question, how does a country become this indebted?
When a country’s revenue is tied up in debt payments, essential public services suffer. Governments, strapped for cash, are forced to cut funding to areas most relied upon by the poor: public healthcare, education, and welfare programs. Hospitals crumble, schools deteriorate, and social safety nets erode, all while the wealthy remain insulated from these cuts. They can afford private healthcare, elite schooling, and are largely unaffected by the withdrawal of public services.
Austerity measures, often imposed to manage these debt burdens, make the situation worse. When public services are cut, low-income households, who depend on them for survival, are forced to either go without or incur more personal debt. As families borrow more to meet their basic needs, their disposable incomes shrink, which in turn reduces national consumption, hampering economic growth. The government then collects less in taxes, which tightens the fiscal noose even further, leaving the state with no choice but to take on more debt.
Debt isn’t just an economic issue—it’s a social one. The poor pay the price through lost opportunities, diminished public services, and higher personal indebtedness, while the wealthy remain protected. It’s a system that perpetuates inequality on a national scale, ensuring that countries are trapped in cycles of poverty, unable to break free.
Whilst interest is said to fuel growth, this blog highlights the true cost of this ‘growth’ on society. We believe a growing economy should benefit all those in society, not only a select few.
When we make choices about interest in consuming or benefitting from it, we are directly and indirectly contributing to a world with real consequences.
Wahed’s vision is to create a world free from interest. We believe that growth should come from real economic activity, and wealth should be built sustainably, from investing in real assets. We believe by providing professional grade investments that are always free from interest, we aim to create long-term wealth for our clients without sacrificing their faith and values.
Join the 400,000 strong community that believes in this vision too and become an investor with Wahed today.
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As with any investment, a Wahed Invest Ltd investment puts your money at risk, as the value of your investment can go down as well as up. The tax treatment of your investment will depend on your individual circumstances and may change in the future. If you are unsure about whether investing is right for you, please seek expert financial advice.
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