June 4, 2023

The World Bank announced Tuesday that developing country debt has more than doubled over the past decade to reach $9 billion in 2021, stressing that the risks of falling into a crisis have increased.

In its annual debt report, it was indicated that about 60% of the poorest countries are about to face a debt crisis or have already faced one, especially in light of the depreciation of their currency against the dollar in the foreign exchange market, since debt is often denominated in dollars, but also due to high interest rates on debt since the beginning of the year.

“The debt crisis facing developing countries has intensified (…) many of these countries are facing financial risks and political instability as millions of people fall into poverty,” World Bank President David Malpass said in a statement, unless steps are taken to help them.

“The picture for developing countries is bleak… Supply of electricity, fertilizer, food and money will be limited for a long time,” he added.

An additional challenge for the poorest countries is that they are now spending more than 10% of their annual export income on paying off their debts, the highest level since the turn of the third millennium.

He also has to make large payments. In 2022, countries that can borrow from the World Bank’s International Development Association must repay more than $62 billion, a significant increase for the year. Two-thirds of this amount will go to China.

According to the World Bank, the composition of developing country creditors has changed dramatically.

Whereas until a short time the debt was mostly in the hands of Paris Club member states (about twenty countries, including the G7 and Russia), it is now mostly in the hands of the private sector (61). %).

Many non-Paris Club countries, led by China, India, and many Gulf states, have seen their shares increase, so that China alone sometimes represents half of another country’s loans.

The multiplicity of entities increases the cost of borrowing for the countries concerned and makes it difficult to restructure their debts before they spiral out of control, as happened recently in Sri Lanka, with often dire consequences for the countries concerned.

Another problem is debt information, especially between countries, which is often incomplete.

“The lack of transparency is one of the causes of the crisis in countries,” said Andremit Gill, chief economist at the World Bank.

“Transparency allows for more efficient debt restructuring so that countries can quickly restore their financial stability and growth,” he added.

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