Freetown, SIERRA LEONE – The World Bank’s latest International Debt Report highlights a concerning milestone as developing countries grappled with a record $443.5 billion in debt-servicing costs during 2022, amid the largest surge in global interest rates in four decades.
The report underscores that this surge in costs diverted crucial resources away from pressing needs such as health, education, and environmental concerns in these nations. Debt-service payments, encompassing both principal and interest, experienced a 5 percent increase across all developing countries compared to the previous year.
Notably, the 75 countries eligible to borrow from the World Bank’s International Development Association (IDA), aimed at supporting the poorest nations, faced a record $88.9 billion in debt-servicing costs in 2022. Over the past decade, interest payments by these countries have quadrupled, reaching an unprecedented high of $23.6 billion in 2022. The report anticipates a further 39 percent increase in overall debt-servicing costs for the 24 poorest countries in 2023 and 2024.
Indermit Gill, Chief Economist and Senior Vice President of the World Bank Group, expressed concern over the situation, stating, “Record debt levels and high interest rates have set many countries on a path to crisis.” He emphasized the urgent need for coordinated action by debtor governments, private and official creditors, and multilateral financial institutions, calling for enhanced transparency, improved debt sustainability tools, and swifter restructuring arrangements to avert another lost decade.
The report further highlighted that surging interest rates have heightened debt vulnerabilities across all developing countries, leading to 18 sovereign defaults in the past three years alone, surpassing the number recorded in the previous two decades. Approximately 60 percent of low-income countries are now at high risk of debt distress or already experiencing it.
Haishan Fu, Chief Statistician of the World Bank and Director of the World Bank’s Development Data Group, emphasized the crucial role of debt transparency in effective debt management and sustainability. He stated, “Debt transparency is the key to sustainable public borrowing and accountable, rules-based lending practices, which are vital for ending poverty on a livable planet.” ZIJ/29/12/2023