London — The gap between developing nations’ debt servicing costs and new financing hit a more than 50-year high of $741bn between 2022 and 2024, the World Bank said on Wednesday, urging countries to use the more relaxed global financing conditions to bring their houses in order.
In its annual “International Debt Report”, the Washington-based lender also found that overall interest payments had hit a record of $415.4bn in 2024 despite some relief from falling global interest rates.
“Global financial conditions might be improving, but developing countries should not deceive themselves: they are not out of danger,” World Bank chief economist Indermit Gill said in the report, adding that debt build-up is continuing “sometimes in new and pernicious ways”.
Bond markets reopened for most countries as the long global interest rate hiking cycle ended, paving the way for billions of dollars in new issuance. But this came at a cost, with interest rates on bond debt near 10% — roughly double those before 2020 — and options for low-cost financing dwindling.
Emerging nations are also increasingly turning to domestic debt markets to fund themselves. In 50 countries, domestic debt grew at a faster pace last year than external debt.
The bank said this was a sign of evolving local credit markets but cautioned that it could squeeze local bank lending to the private sector and potentially raise the cost of refinancing due to shorter maturities.
Emerging markets reworked nearly $90bn of external debt in 2024 — a 14-year high — including restructurings in Ghana, Zambia, Sri Lanka, Ukraine and Ethiopia and debt forgiveness in Haiti and Somalia.
Meanwhile, net flows of bilateral lending collapsed 76% to $4.5bn, a level not seen since the 2008 financial crisis, forcing countries to seek more costly private financing.
While multilateral lending rose and the World Bank itself lent a record $36bn, 54% of low-income nations are now in debt distress or facing high debt risks.
“Policymakers everywhere should make the most of the breathing room that exists today to put their fiscal houses in order instead of rushing back into external debt markets,” Gill said.
Key takeaways from the “International Debt Report”:
• Growth in total external debt stock of LMICs slowed considerably in 2024, rising by only 1.1% from 2023 to reach $8.9-trillion, after more than doubling the 2010 level. A similar trend was observed for countries eligible for International Development Association (IDA) assistance, where external debt stood at $1.2-trillion in 2024, only 2% higher than the previous year.
• Net debt inflows (disbursements minus principal repayments) to LMICs increased 40.7% to $210.3bn in 2024, mainly because of bond issuance and financing from multilateral institutions, which accounted for 38.1% and 48.5%, respectively, of long-term debt inflows, for a combined share of 86.5%. Total net debt inflows to IDA-eligible countries rose 18.6% to $53.1bn in 2024.
• LMICs saw a reversal in bond flows, shifting from $75.4bn in outflow in 2023 to an inflow of $55bn in 2024, reflecting renewed investor confidence, stronger economic growth prospects, and lower perceived credit risk. Bondholders were the fastest-growing component of public and publicly guaranteed (PPG) net debt flows to IDA-eligible countries, reversing from an outflow of US$730.4m in 2023 to an inflow of US$7.1bn in 2024. The increase, not seen since an $11.1bn jump in 2021, was the result of new issuances in 2024, which outpaced the increase in PPG bond principal repayments.
• In 2024, net debt inflows from multilateral creditors were the largest contributing component to PPG net debt flows, accounting for 73.2% of PPG net debt flows. They recorded US$70.1bn in net debt inflows, nearly half of LMICs’ net long-term debt inflows. The financial support from this creditor group fell 5.1%, easing after the unprecedented support provided during the Covid-19 pandemic.
Reuters
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.