Developing countries spent almost half a trillion dollars in 2022 to service their external public and government-guaranteed debt, diverting money from critical health, education and climate needs and putting the poorest countries at increasing risk to 'end up in a debt crisis'. Bank said this on Wednesday.
In its latest International Debt Report, the bank said debt service payments – including principal and interest – rose 5% to a record $443.5 billion from a year earlier, amid the biggest increase in global interest rates in four decades. It said payments could be 10% higher in 2023-2024.
The 75 poorest countries were hit hardest, said the report, which is now 50 years old. Their external debt service payments reached a record $88.9 billion in 2022 and are expected to rise by 40% over 2023-2024. Their interest payments alone had quadrupled since 2012 to $23.6 billion, the report said.
“This is the decade of reckoning,” Indermit Gill, chief economist at the World Bank, told Reuters in an interview. “Record debt levels and high interest rates have put many countries on a path to crisis,” he said, warning that persistently high interest rates would push more developing countries into debt problems.
Gill said he was closely watching Ethiopia's talks with bondholders after the collapse of talks over how long to extend the maturity and spread repayments on its only $1 billion international bond, which matures in December 2024 .
“Ethiopia is like a canary in the coal mine,” he said. 'It is the largest country that would go bankrupt. That's an important one.
It is one of the five largest economies in sub-Saharan Africa.” Ethiopia is heading towards bankruptcy after saying last week it cannot pay the $33 million bond coupon due on Monday.
Gill told reporters that high levels of indebtedness and slowing growth in many countries were raising concerns about a new debt crisis and the risk of contagion, but said he does not view that risk as “imminent.” He said the situation would remain difficult for developing countries, with past experience suggesting interest rates were unlikely to fall “anytime soon”, especially as supply shocks could quickly push inflation back up.
Gill called for “rapid and coordinated action” from debtor countries, private and official creditors and multilateral financial institutions to improve transparency, develop better debt sustainability instruments and accelerate debt restructuring.
African countries were facing “another lost decade,” Gill told Reuters, noting that on average they had seen no per capita income growth since 2014.
According to the report, one in four developing countries are now priced out of international capital markets and 18 sovereign debt defaults have occurred in 10 countries in the past three years, more than in the past 20 years combined.
Debt repayments are eating up an increasing share of export revenues, with some countries now “just one shock away from a debt crisis,” Gill wrote in the report, noting that about 60% of low-income countries are already in trouble or runs the risk of ending up there. debt burden. Domestic debts in countries such as Argentina and Pakistan were also high, increasing risks.
Countries that deferred principal and interest payments under the Group of 20's Debt Service Suspension Initiative (DSSI), adopted during the COVID pandemic, also faced additional costs now that those payments were due, the bank said , although exact data won't be reported until 2024. .
The report noted that private capital had largely withdrawn from developing countries, favoring higher interest rates in advanced economies. Private creditors received $185 million more in principal repayments than they paid out on loans, the first time since 2015. In total, there was a net outflow of $127.1 billion from low- and middle-income countries to bondholders, compared to an average inflow of $202 billion dollars between 2019 and 2021.
The World Bank and other multilateral creditors have helped close this gap by providing a record $115 billion in new financing for developing countries in 2022, the report said.