July 14, 2024

Developing Countries Paid Record $443.5 Billion on Public Debt in 2022

OCTOBER 11, 2022 - WASHINGTON DC. 2022 IMF/WORLD BANK ANNUAL MEETINGS: Inclusive Growth: The Key to a Lasting Recovery World Bank convenes a broad set of voices to underscore the urgency of the poverty challenge and the limited ability developing countries have to offset shocks through fiscal policy. It will highlight the policies that can support inclusive growth based on the World Bank’s country experience and knowledge work. David R. Malpass, President, World Bank Group; Lawrence H. Summers, President Emeritus and Charles W. Eliot University Professor, Harvard University; Makhtar Diop, Managing Director, IFC; Karima Ola, Lead, LeapFrog’s African Financial Services; Mayada El-Zoghbi, Managing Director, Center for Financial; Karima Ola, Partner, LeapFrog Investments; Mayada El-Zoghbi Managing Director, Center for Financial Inclusion; Susan Lund VP for Economics and Private Sector Development, IFC. Photo: World Bank /

Developing countries faced an unprecedented challenge in 2022 as they grappled with the largest surge in global interest rates in four decades, resulting in record-high debt servicing costs of $443.5 billion, according to the World Bank’s latest International Debt Report. These mounting debt payments diverted crucial resources away from critical areas such as healthcare, education, and environmental initiatives.

The report revealed that debt-service payments, which encompass both principal and interest, surged by 5 percent compared to the previous year for all developing nations. Among the 75 countries eligible to borrow from the World Bank’s International Development Association (IDA), which primarily supports the world’s poorest countries, a staggering $88.9 billion was paid towards debt servicing in 2022. Over the last decade, interest payments from these countries have quadrupled, reaching a historic high of $23.6 billion in 2022. The report further predicts a significant increase in debt-servicing costs for the 24 poorest nations in 2023 and 2024, possibly soaring by as much as 39 percent.

Indermit Gill, the World Bank Group’s Chief Economist and Senior Vice President, expressed his concerns, stating, “Record debt levels and high interest rates have set many countries on a path to crisis. Every quarter that interest rates stay high results in more developing countries becoming distressed—and facing the difficult choice of servicing their public debts or investing in public health, education, and infrastructure. The situation warrants quick and coordinated action by debtor governments, private and official creditors, and multilateral financial institutions—more transparency, better debt sustainability tools, and swifter restructuring arrangements. The alternative is another lost decade.”

The surge in interest rates has heightened debt vulnerabilities across all developing countries, resulting in 18 sovereign defaults within the last three years, occurring in 10 developing nations. This number surpasses the cumulative defaults recorded in the previous two decades. Presently, approximately 60 percent of low-income countries are either at high risk of debt distress or already grappling with it.

The report also pointed out that interest payments increasingly consume a significant portion of low-income countries’ exports. More than a third of their external debt consists of variable interest rates, which could suddenly surge. Additionally, these countries face the burden of accumulated principal, interest, and fees incurred under the G-20’s Debt Service Suspension Initiative (DSSI). The strengthening of the U.S. dollar exacerbates their challenges, making debt payments even more expensive and potentially pushing countries closer to the brink if interest rates rise further or export earnings decline.

As debt-servicing costs have risen, new financing options for developing countries have dwindled. In 2022, new external loan commitments to public and publicly guaranteed entities in these countries plummeted by 23% to $371 billion, marking the lowest level in a decade. Private creditors, in particular, withdrew from investing in developing nations, receiving $185 billion more in principal repayments than they disbursed in loans. This marked the first time since 2015 that private creditors received more funds than they invested in developing countries. New bond issuances by developing nations in international markets also saw a dramatic drop by over half from 2021 to 2022, with low-income countries experiencing a more than three-quarters reduction. New bond issuance by IDA-eligible countries plummeted by over three-quarters to just $3.1 billion.

With private creditors scaling back their financing, multilateral development banks, including the World Bank, have stepped in to help bridge the financing gap. In 2022, multilateral creditors extended $115 billion in new low-cost financing to developing countries, with nearly half of it coming from the World Bank. Through IDA, the World Bank provided $16.9 billion more in new financing for these countries than it received in principal repayments—an amount nearly three times higher than the figure a decade ago. Additionally, the World Bank disbursed $6.1 billion in grants to these nations, tripling the amount provided in 2012.

The latest International Debt Report marks its 50th anniversary and serves as a vital resource for understanding external debt data of developing countries. It emphasizes the importance of debt transparency, clear data, and sustainable public borrowing practices to guide debt management and restructuring efforts, ultimately aiding countries in achieving economic stability and growth.

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