December 03, 2024
The World Bank announced that developing countries spent a record $1.4 trillion servicing their foreign debts in 2023, as interest costs climbed to a 20-year high. This surge in costs has squeezed budgets for essential services, including healthcare, education, and environmental protection.
According to the bank’s latest International Debt Report, total foreign debt interest payments from developing countries soared to $406 billion, with the poorest countries facing the most severe strains. These countries, eligible to borrow from the bank’s International Development Association (IDA), paid a record $96.2 billion in 2023. Despite a nearly 8% drop in principal repayments to $61.6 billion, their interest costs surged to an all-time high of $34.6 billion in 2023—four times the amount from a decade ago.
The World Bank noted that, on average, IDA-eligible countries now spend 6% of their export earnings on foreign debt service, a level not seen since 1999. For some countries, these payments can be as high as 38% of export earnings.
Separately, a banking trade group reported that the world’s total debt stock surged by $12 trillion in the first three quarters of 2024, reaching a record of nearly $323 trillion. The Institute of International Finance also warned that sovereign debt could rise by a third to $130 trillion by 2028 if growing government budget deficits are not controlled, increasing repayment risks.
At the end of 2023, the external debt owed by all low- and middle-income countries stood at a record $8.8 trillion, up 8% from 2020. The financial strain on the poorest countries has forced them to turn to multilateral institutions, including the World Bank and the International Monetary Fund. These institutions have provided $51 billion more in 2022 and 2023 than they collected in debt service payments, according to the World Bank report.
“Multilateral institutions have become the last lifeline for poor economies struggling to balance debt payments with spending on health, education, and other key development priorities,” said World Bank Chief Economist Indermit Gill. He added that these institutions were not designed to be lenders of last resort.
Source: (Reuters)
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