Developing Countries Paid Record $1.4 Trillion on Foreign Debt in 2023

• Developing countries spent a record $1.4Tn to service their foreign debt as their interest costs climbed to a 20-year high in 2023, the World Bank’s latest International Debt Report shows. Interest payments surged by nearly a third to $406Bn, squeezing the budgets of many countries in critical areas like health, education, and the environment.
• The financial strain was fiercest for the poorest and most vulnerable countries – those eligible to borrow from the World Bank’s International Development Association (IDA), the data show. These countries paid a record $96.2Bn to service their debt in 2023. Although repayments of principal decreased by nearly 8% to $61.6Bn, interest costs surged to an all-time high of $34.6 billion in 2023, four times the amount a decade ago. On average, interest payments of IDA countries now amount to nearly 6% of the export earnings of IDA-eligible countries – a level that hasn’t been seen since 1999. For some countries, the payments run as high as 38 percent of export earnings.
• As credit conditions tightened, the World Bank and other multilateral institutions became the main lifeline for the poorest economies. Since 2022, foreign private creditors have received nearly $13Bn more in debt-service payments from public sector borrowers in IDA-eligible economies than they disbursed in new financing. Over the same period, the bank and other multilateral institutions pumped in nearly $51Bn more in 2022 and 2023 than they collected in debt-service payments. The World Bank accounted for a third of that sum – $28.1Bn.
• “Multilateral institutions have become the last lifeline for poor economies struggling to balance debt payments with spending on health, education, and other key development priorities,” said Indermit Gill, the World Bank Group’s chief economist and senior vice president. “In highly indebted poor countries, multilateral development banks are now acting as a lender of last resort, a role they were not designed to serve. That reflects a dysfunctional financing system – except for funds from the World Bank and other multilateral institutions, money is flowing out of poor economies when it should be flowing in.”
• In 2023, borrowing abroad became considerably more expensive for all developing economies. Interest rates on loans from official creditors doubled to more than 4%. Rates charged by private creditors climbed by more than a point to 6% – a 15-year high. Global interest rates have since begun to subside, although they are expected to remain above the average that prevailed in the decade before COVID-19.

(Source: Caribbean News Global)