BY BAMIDELE FAMOOFO
The poorest countries eligible to borrow from the World Bank’s International Development Association now spend over a tenth of their export revenues to service their long-term public and publicly guaranteed external debt—the highest proportion since 2000, the World Bank’s new International Debt Report shows.
The report highlights 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 totaled $9 trillion, more than double the amount a decade ago.
During the same period, the total external debt of IDA countries, meanwhile, nearly tripled to $1 trillion.
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, IDA-eligible countries’ debt-service payments on long-term public and publicly guaranteed external debt totaled $46.2 billion—equivalent to 10.3 percent of their exports of goods and services and 1.8 percent of their gross national income (GNI), according to the report.
Those percentages were up significantly from 2010, when they stood at 3.2 percent and 0.7 percent respectively.
In 2022, IDA countries’ debt-service payments on their public and publicly guaranteed debt are projected to rise by 35 percent to more than $62 billion, one of the highest annual increases of the past two decades. China is expected to account for 66 percent 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.”
On the surface, debt indicators seem to have improved in 2021, the report shows. As economic growth resumed following the global recession in 2020, public and publicly guaranteed external debt as a share of GNI returned to pre-pandemic proportions. However, this was not the case for IDA countries, where the debt- to-GNI ratio remained above the pre-pandemic level at 25%. Moreover, the economic outlook has deteriorated considerably.
In 2022, global growth is slowing 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 next year has been rising. Currency depreciations have made matters worse for many developing countries whose debt is denominated in U.S. 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 percent of their public and publicly guaranteed debt to private creditors—an increase of 15 percentage points from 2010. IDA-eligible countries owed 21 percent 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. At the end of 2021, China was the largest bilateral lender to IDA countries, accounting for 49 percent of their bilateral debt stock—up from 18 percent in 2010. These developments have made it much harder for countries facing debt distress to quickly restructure their debt.
