Developing nations spent a record $443 billion in debt service payments in 2022, according to the World Bank, which warned the situation risks tipping more countries into crisis and setting off a “lost decade” of economic stagnation.
The payments, which include principal and interest, rose by more than 5% from the previous year, the Washington-based lender said Wednesday in its latest International Debt Report.
Developing countries globally took on piles of debt during the previous two decades of steady economic growth and low-interest rates. But after the impact of the pandemic, war in Europe, and a surge in interest rates, those debt burdens have become unsustainable, particularly as the stronger US dollar pushes domestic inflation higher and depletes foreign exchange reserves.
Restructuring those debts has also become harder with the emergence of new sovereign lenders, most notably China, as well as a growing share of private creditors. Reworking debt loads for some countries now — including Zambia, Ghana and Sri Lanka — has been stalled for years as the creditors struggle to agree on terms under a process being encouraged by the World Bank’s sister institution, the International Monetary Fund.
The World Bank warned that the rising debt payments are diverting resources away from health, education and the environment.
“Record debt levels and high-interest rates have set many countries on a path to crisis,” Indermit Gill, the bank’s chief economist, said in a statement. “Every quarter that interest rates stay high results in more developing countries becoming distressed.”About 60% of low-income countries are at a high risk of debt distress or are already in it, according to the World Bank. Over the past three years, there have been 18 sovereign defaults across 10 developing countries, more than the total over the previous two decades, it said.
The 75 poorest nations — which are eligible to receive low- and no-interest financing and grants from the World Bank’s International Development Association — paid an all-time high of $88.9 billion to service their debts in 2022. Interest payments by those countries quadrupled over the past decade to $23.6 billion.
