The World Bank’s latest International Debt Report has shown that developing countries spent a record $443.5 billion to service their external public debt in 2022.
This, according to the report released on Wednesday, is amid the biggest surge in global interest rates in four decades.
Poorest countries, shows the report, face risk of debt crises as borrowing costs surge.
The increase in costs shifted scarce resources away from critical needs such as health, education, and the environment.
A statement by the World Bank said debt-service payments increased by five per cent over the previous year for all developing countries.
“The 75 countries eligible to borrow from the World Bank’s International Development Association (IDA)—which supports the poorest countries—paid a record $88.9 billion in debt-servicing costs in 2022. Over the past decade, interest payments by these countries have quadrupled, to an all-time high of $23.6 billion in 2022. Overall debt-servicing costs for the 24 poorest countries are expected to balloon in 2023 and 2024—by as much as 39 percent, the report finds,” the statement said.
IDA-eligible countries have in the last decade added to their debt at a pace that exceeds their economic growth. This, the report shows, is a red flag for their prospects in the future.
“In 2022, the combined external debt stock of IDA-eligible countries hit a record US$1.1 trillion—more than double the 2012 level. From 2012 through 2022, IDA-eligible countries increased their external debt by 134%, outstripping the 53% increase they achieved in their gross national income (GNI),” said the bank.
World Bank Group’s Chief Economist and Senior Vice President Indermit Gill said record debt levels and high interest rates set many countries on a path to crisis.
“Every quarter that interest rates stay high results in more developing countries becoming distressed—and facing the difficult choice of servicing their public debts or investing in public health, education, and infrastructure. The situation warrants quick and coordinated action by debtor governments, private and official creditors, and multilateral financial institutions—more transparency, better debt sustainability tools, and swifter restructuring arrangements. The alternative is another lost decade,” Gill said.
Haishan Fu, Chief Statistician of the World Bank and Director of the World Bank’s Development Data Group, said knowing what a country owes and to whom is essential for better debt management and sustainability.
“The first step in avoiding a crisis is having a clear picture of the challenge. And when problems arise, clear data can guide debt restructuring efforts to get a country back on track towards economic stability and growth. Debt transparency is the key to sustainable public borrowing and accountable, rules-based lending practices which are so vital to ending poverty on a livable planet,” Fu said.
