The foreign debt of developing countries reached 1.4 trillion dollars
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These countries, which were eligible to borrow from the International Development Association of the World Bank, have paid a record 96.2 billion dollars in interest in 2023. Even though the repayment of the principal of the debt decreased by nearly 8% and reached 61.6 billion dollars, their interest cost in 2023 reached the highest figure in history, which is four times the amount of a decade ago, equal to 34.6 billion dollars.
More worrying is that private lenders have almost $13 billion more, according to World Bank senior economist Indermit Gill. of new financial payments received from these countries in the last two years. This pressure diverts funds from necessary investments at home, in areas ranging from public health to climate change.
The latest World Bank warning, a period of increasing pressure on the finances of poor countries after the start of the pandemic covers the corona that higher costs and then interest rate hikes around the world sent debt costs skyrocketing. Countries including Sri Lanka and Zambia have defaulted since the outbreak of Covid-19, while others such as Pakistan and Kenya have been on the brink and international efforts to agree on a broader solution have stalled. , including getting rid of private loans, is still facing problems.
Gill wrote in a draft report released on Tuesday that it was time to face reality: The poorest countries with debt problems need to achieve sustainable prosperity if they are to achieve the goal. to reduce debt. Private lenders who make high-risk, high-interest loans to poor countries must bear a fair share of the costs in the event of a default debt.
For all developing countries, including large and stable economies such as China and India, total debt payments last year reached $1.4 trillion, including $406 billion in interest. This is indicative of a dysfunctional financing system, Gill wrote, adding that the idea that private capital would flow to private countries for rapid development a decade ago is pure fantasy.
Gail’s order is issued while the head of the bank, Aji Banga has made encouraging more private sector investment for development alongside multilateral lenders one of its main priorities. This bank, in cooperation with the International Monetary Fund, is trying to guide countries with debt problems towards policies that will strengthen their finances and reduce their borrowing costs.
Many countries suffered from heavy borrowing, especially from China and other private lenders, in the pre-Covid years when interest rates were low. Problems were compounded when the pandemic pushed governments into emergency spending and then interest rates rose to fight post-Covid inflation. The consequences of this process continue. A report from credit rating company S&P Global predicted in October that over the next 10 years, governments will default on their foreign currency debt more than ever before. did.
The flight of private capital from emerging markets has continued this year. Investors using hard currencies such as the dollar or the euro will withdraw roughly $13.6 billion from emerging market debt funds in 2024, after withdrawing roughly $23 billion last year, according to Bank of America data.
The biggest risks are facing the 78 poor countries that the World Bank identifies as eligible countries for receiving low-interest or no-interest financial assistance from the International Development Association Fund. Gill wrote that many of these countries are facing a metastasizing debt crisis that continues to be misdiagnosed as a liquidity problem.
