Washington: The World Bank says developing countries paid 741 billion dollars more in principal and interest on their external debt than they received in new financing between 2022 and 2024.
According to News Agency of Nigeria, this significant outflow marks the largest gap in at least 50 years, as highlighted in the latest International Debt Report issued by the World Bank Online Media Briefing Centre.
Despite these substantial outflows, developing countries experienced some relief in 2024 with the peaking of interest rates and the reopening of international bond markets. This shift allowed many nations to avoid default risks through debt restructuring, with a collective 90 billion dollars of external debt being restructured, the highest level since 2010.
Bond investors played a crucial role during this period, injecting 80 billion dollars more in new financing than they received in repayments and interest. This support facilitated several multi-billion-dollar bond issuances. However, these funds came at the cost of high interest rates, averaging around 10 percent, which is approximately double the rates seen before 2020.
Indermit Gill, World Bank Group Chief Economist and Senior Vice-President for Development Economics, noted that while global financial conditions might be improving, developing countries remain vulnerable. He emphasized the importance for policymakers to utilize the current financial respite to stabilize their fiscal policies rather than hastily returning to external debt markets.
The report also highlighted a historic rise in the external debt of low- and middle-income countries, reaching 8.9 trillion dollars in 2024. Among these, 78 low-income countries eligible to borrow from the World Bank’s International Development Association (IDA) owed a record 1.2 trillion dollars. Furthermore, the average interest rates for newly contracted public debt from both official and private creditors reached significant highs, burdening these economies with a record 415 billion dollars in interest payments alone.
The human cost of this rising debt burden is starkly evident, with one in two individuals in the most heavily indebted countries unable to afford the minimum daily diet for long-term health. Access to low-cost financing became increasingly challenging in 2024, with multilateral development banks like the World Bank being the primary financiers for IDA-eligible countries, providing 18.3 billion dollars more in new financing than they received in repayments.
Official bilateral creditors have retreated after numerous debt restructurings, with bilateral creditors receiving 8.8 billion dollars more in repayments than they disbursed in new financing. Consequently, many developing countries turned to domestic commercial banks and financial institutions to meet their financing needs. Of the 86 countries with available domestic data, more than half recorded faster growth in domestic government debt compared to external government debt.
Haishan Fu, World Bank Group Chief Statistician and Director of the Development Data Group, acknowledged the shift towards domestic financing as a significant policy achievement, reflecting evolving local capital markets. However, he cautioned against excessive domestic borrowing, which could lead to local banks prioritizing government bonds over private sector lending and potentially raising refinancing costs due to shorter maturities.
The report further revealed that in countries with external debt exceeding 200 percent of export revenue, an average of 56 percent of the population struggled to afford a minimum daily diet, underscoring the severe socio-economic impact of rising debt levels.