Rising interest rates are saddling the world’s poorest countries with record levels of debt and making it more difficult to invest in public health, education and infrastructure initiatives that are essential to helping their populations emerge from poverty. poverty, the World Bank warned on Wednesday.
In its latest international debt report, the World Bank said low- and middle-income countries paid $443.5 billion in principal and interest in 2022. This is the highest level in history and an increase of 5% from 2021. The organization projects that the total would increase by almost 40% in 2023 and 2024. The bank estimates that more than half of the world’s low-income countries face debt distress and called for a restructuring of their obligations to avoid a “lost decade”.
“Record debt levels and high interest rates have put many countries on the path to crisis,” said Indermit Gill, chief economist of the World Bank Group.
The World Bank has highlighted that variable interest rates on debt that many developing countries owe and struggle to repay pose an imminent threat to their solvency. The bank also noted that the strengthening of the US dollar, which caused these countries’ currencies to lose value in global markets, made repayment more expensive.
Governments have defaulted on their debts 18 times in the past three years, including in countries like Zambia, Sri Lanka and Lebanon. This figure exceeds the total number of defaults recorded over the previous two decades, underscoring how unsustainable the debt burden has become.
This difficult situation has also made it more difficult for developing countries to attract new investment and financing. According to the World Bank, new loan commitments to developing countries fell by 23 percent last year, to $371 billion. It was the first time since 2015 that private creditors received more money than they invested in developing countries.
The growing debt burden has put additional pressure on multilateral development institutions such as the World Bank to provide low-cost loans to poor countries. International coalitions such as the Group of 20 have also pushed to accelerate debt relief, but these efforts are progressing slowly.
China, the world’s largest creditor, has been criticized for being an obstacle to debt restructuring deals because of its reluctance to take losses on its loans. Earlier this year, China reached an agreement in principle with Zambia to restructure $4 billion in debt, but the deal was not finalized due to continued objections to concessions from some of its creditors.
Sri Lanka, which declared bankruptcy last year, is also working on a restructuring plan with creditors including China, Japan and India.
As rich countries face high debt and global economic growth remains sluggish, aid to developing economies may remain difficult to obtain.
Treasury Secretary Janet L. Yellen said Wednesday at a Wall Street Journal CEO Council event that debt relief is one of the most important issues on which the United States and the China had to work together and that this was a regular topic of discussion with them. Chinese counterparts.
“Many countries around the world are really suffering, particularly with high interest rates due to unsustainable debt burdens,” Ms. Yellen said. “They need to restructure their debt and we need to cooperate to do that. »