The eligible poorest countries that can borrow from the World Bank now seems to spend over a tenth of their export revenues to service their long-term public and publicly guaranteed external debt — the highest proportion since 2000.
A recent report by the World Bank has highlighted rising debt-related risks for all developing economies — low as well as middle-income economies.
At the end of 2021, the external debt of these economies totalled $9tn, more than double the amount a decade ago. During the same period, the total external debt of IDA countries, or those seeking assistance from World Bank’s International Development Association, nearly tripled to $1tn.
Rising interest rates and slowing global growth risk tipping a large number of countries into debt crises. About 60% of the poorest countries are already at high risk of debt distress or already in distress.
At the end of 2021, World Bank’s IDA eligible countries’ debt-service payments on long-term public and publicly guaranteed external debt totalled $46.2bn — equivalent to 10.3% of their exports of goods and services and 1.8% of their gross national income (GNI), according to the report.
Those percentages were up significantly from 2010, when they stood at 3.2% and 0.7% respectively.
In 2022, IDA countries’ debt-service payments on their public and publicly guaranteed debt are projected to rise by 35% to more than $62bn, one of the highest annual increases of the past two decades.
China is expected to account for 66% of the debt-service payments to be made by IDA countries on their official bilateral debt.
“The debt crisis facing developing countries has intensified,” said World Bank Group President David Malpass.
“A comprehensive approach is needed to reduce debt, increase transparency, and facilitate swifter restructuring — so countries can focus on spending that supports growth and reduces poverty. Without it, many countries and their governments face a fiscal crisis and political instability, with millions of people falling into poverty.”
In 2022, global growth had slowed sharply. Amid one of the most internationally synchronous episodes of monetary and fiscal policy tightening the world has seen in 50 years, the risk of a global recession this year has been rising.
Currency depreciation has made matters worse for many developing countries whose debt is denominated in US dollars. The 2021 debt-to-GNI improvement, as a result, is likely temporary.
Over the past decade, the composition of debt owed by IDA countries has changed significantly. The share of external debt owed to private creditors has increased sharply. At the end of 2021, low- and middle-income economies owed 61% of their public and publicly guaranteed debt to private creditors — an increase of 15 percentage points from 2010.
IDA-eligible countries owed 21% of their external debt to private creditors by the end of last year, a 16-point increase from 2010.
Also, the share of debt owed to government creditors that don’t belong to the Paris Club (such as China, India, Saudi Arabia, United Arab Emirates, and others) has soared.
Obviously, these developments have made it much harder for countries facing debt distress to quickly restructure their debt.