The World Bank says developing countries spent a record $443.5 billion to service their external public and publicly guaranteed debt in 2022.
In a statement published on its website, the Bank said the increase in costs shifted scarce resources away from critical needs such as health, education, and the environment.
In its latest International Debt Report the Bank indicated that Debt-service payments—which include principal and interest—increased by 5 percent over the previous year for all developing countries.
The 75 countries eligible to borrow from the World Bank’s International Development Association (IDA), 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, the Bank noted.
“Overall debt-servicing costs for 24 countries are expected to balloon in 2023 and 2024—by as much as 39 percent.”
“Record debt levels and high interest rates have set many countries on a path to crisis,” said Indermit Gill, the World Bank Group’s Chief Economist and Senior Vice President.
“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.’’
Surging interest rates have intensified debt vulnerabilities in all developing countries, according to the World Bank.
In the past three years alone, there have been 18 sovereign defaults in 10 developing countries—greater than the number recorded in all of the previous two decades.
“Today, about 60 percent of low-income countries are at high risk of debt distress or already in it,” the statement added.
The report qlso indicated that; “Interest payments consume an increasingly large share of low-income countries’ export, the report finds. More than a third of their external debt, moreover, involves variable interest rates that could rise suddenly. Many of these countries face an additional burden: the accumulated principal, interest, and fees they incurred for the privilege of debt-service suspension under the G-20’s Debt Service Suspension Initiative (DSSI).
“The stronger US dollar is adding to their difficulties, making it even more expensive for countries to make payments. Under the circumstances, a further rise in interest rates or a sharp drop in export earnings could push them over the edge.”
The International Debt Report (IDR), formerly known as International Debt Statistics (IDS), is a longstanding annual publication of the World Bank featuring external debt statistics and analysis for the 122 low- and middle-income countries that report to the World Bank Debt Reporting System (DRS).