The World Bank’s latest International Debt Report has revealed that developing nations spent $1.4 trillion on foreign debt servicing in 2023, marking a significant increase driven by the highest global interest rates in two decades.
Interest payments alone surged to $406 billion, a nearly 30% rise from the previous year. This sharp increase in debt servicing has severely impacted the ability of these countries to invest in essential sectors such as health, education, and environmental programs.
The report highlights that the most vulnerable economies, particularly those eligible for loans from the World Bank’s International Development Association, were hit hardest by the financial strain, paying a record $96.2 billion in debt servicing last year.
While principal repayments decreased by 8% to $61.6 billion, interest payments saw a dramatic rise, reaching a record $34.6 billion — four times the amount recorded a decade ago.
On average, IDA-eligible countries allocated nearly 6% of their export earnings to interest payments, a level last seen in 1999. In some nations, this percentage soared as high as 38%, highlighting the severe impact of the debt crisis.
As credit conditions tightened globally, multilateral institutions such as the World Bank have become vital financial lifelines for low-income countries. The report noted that between 2022 and 2023, foreign private creditors received $13 billion more in debt-service payments from IDA-eligible economies than they disbursed in financing.
Meanwhile, multilateral institutions, led by the World Bank, provided $51 billion more in funding than they collected in debt-service payments, with the World Bank contributing $28.1 billion of the net support.
Indermit Gill, Chief Economist and Senior Vice President of the World Bank Group, commented: “Multilateral development banks are now acting as lenders of last resort for highly indebted poor countries, a role they were not designed to serve.”
The World Bank pointed to the COVID-19 pandemic as a major factor that exacerbated the debt burdens of developing countries, a situation made worse by rising global interest rates.
By the end of 2023, the total external debt of low- and middle-income countries had reached $8.8 trillion, marking an 8% increase since 2020. For IDA-eligible economies, external debt rose by nearly 18% to $1.1 trillion.
Interest rates on loans from official creditors doubled to more than 4%, while rates charged by private creditors increased by more than a percentage point to 6%, a 15-year high. Although global interest rates have started to decline, they are expected to remain above the levels seen before the COVID-19 pandemic.
The latest report also emphasizes the World Bank’s effort to enhance the accuracy of debt data for IDA-eligible economies.
The Bank’s upgraded data reconciliation process now boasts a 98% match rate, reducing the margin of error from 10 points to just two. This improvement is part of the World Bank’s commitment to providing more transparent and reliable data on external debt.
