A new major study led by Christian Aid suggests that loan companies are taking advantage of countries in the global south, leaving them in a debt "chokehold."
The report claimed that private sovereign debt is a growing risk to poor and middle-income nations because of rising interest rates and a strong US Dollar.
Increasingly expensive commercial loans are used for development projects and plugging holes in tax income in many countries including Kenya, Nigeria, Guatemala and El Salvador.
Christian Aid has warned that issuing bonds and borrowing from non-government or multilateral lenders is backfiring.
The charity said the effects of the global pandemic, a deepening climate crisis and the war in Ukraine are causing a worldwide economic downturn leading to increasing need for public spending, has made the existing debt problem worse.
The report highlights that, with interest rates going up around the world to push down inflation, paying back private loans in US Dollars is becoming even more expensive with every increase in the US Dollar's value against other currencies.
Christian Aid has called on the UK Government to use its influence to support debt relief and compel private creditors to take part in existing IMF schemes. It's also called for details of private commercial loan agreements to be made public to ensure proper scrutiny and discourage risky lending and borrowing.
The charity also said debts should be assessed on their contribution to sustainable and fair development, not on a country's ability to pay.
Karimi Kinoti, Christian Aid's Interim Director of Policy in Africa, said: "The impact of the climate crisis, conflict and Covid-19 has left people who were already struggling without a way to feed their families. This additional financial threat has all the explosive ingredients to cause a devastating debt crisis.
"Not only that, the diversion of limited public funds to pay back expensive private debt acts like a chokehold on too many national economies in the global south. Money should be going to where it's most needed, like adapting farming to climate change and better health services.
"Take Nigeria's health budget. It has steadily declined as a proportion of national income from 5 per cent in 2003 to 3 per cent in 2019. During the same period, the annual costs of private debts have skyrocketed.
"The UK Government has a moral obligation to act. Ministers should use their influence to compel private creditors to support debt relief and ensure debt is assessed on the contribution to sustainable development and not on a country's ability to pay."
Last week, World Bank and IMF held their annual meetings in Washington this week to look at global economic turbulence and the hunger crisis in Africa.