Developing nations paid record $1.4 trillion on foreign debt in 2023: World Bank

Developing countries spent a record $1.4 trillion last year to service their foreign debt as their interest costs climbed to a 20-year peak, the World Bank’s latest International Debt Report showed.

Interest payments surged by nearly one-third to $406 billion, squeezing the budgets of many countries in critical areas such as health, education, and the environment.

The financial strain was fiercest for the poorest and most vulnerable countries—those eligible to borrow from the World Bank’s International Development Association (IDA), the data showed.

These countries paid a record $96.2 billion to service their debt last year. Although repayments of principal fell by nearly 8% to $61.6 billion, interest costs surged to an all-time high of $34.6 billion, four times the amount a decade ago.

On average, IDA-eligible countries now spend nearly 6% of their export earnings on interest payments, a rate not seen since 1999. In some cases, these payments account for as much as 38% of export earnings.

As credit conditions tightened, the World Bank and other multilateral institutions became the primary support for the poorest economies. Since 2022, foreign private creditors have collected nearly $13 billion more in debt payments from public sector borrowers in IDA-eligible economies than they provided in new financing.

Meanwhile, the Bank and other multilateral institutions injected almost $51 billion more in 2022 and 2023 than they received in debt payments. The World Bank contributed a third of this amount, totaling $28.1 billion.

“Multilateral institutions have become the last lifeline for poor economies struggling to balance debt payments with spending on health, education, and other key development priorities,” said Indermit Gill, the World Bank Group’s chief economist and senior vice-president.

“In highly indebted poor countries, multilateral development banks are now acting as a lender of last resort, a role they were not designed to serve. That reflects a dysfunctional financing system: except for funds from the World Bank and other multilateral institutions, money is flowing out of poor economies when it should be flowing in,” Gill said.

The pandemic sharply enlarged the debt burden of developing countries—and the subsequent surge in global interest rates has made it harder for many to regain their footing. At the end of 2023, the total external debt owed by all low- and middle-income countries stood at a record $8.8 trillion, an 8% increase over 2020, the World Bank said.

The percentage increase was more than twice as large for IDA-eligible countries, whose total external debt climbed to $1.1 trillion, an increase of nearly 18%.

Interest rates on loans from official creditors doubled to more than 4%. Rates charged by private creditors climbed by more than a point to 6%—a 15-year high. Global interest rates have since begun to subside, although they are expected to remain above the average that prevailed in the decade before covid, the World Bank said.

The latest International Debt Report reflects an upgraded effort to ensure accuracy in the debt data of IDA-eligible economies—by matching data these economies report to the World Bank’s Debtor Reporting System with data held by G7 and Paris Club creditors. This loan-by-loan reconciliation exercise produced a 98% match rate in the data, lowering the margin of error from 10 points to just two, it said.

“Comprehensive data on the liabilities of governments can facilitate new investment, reduce corruption, and prevent costly debt crises,” said Haishan Fu, the World Bank chief statistician and director of its development data group. “The World Bank has played a leading role in improving debt transparency across the world, especially in IDA-eligible economies. In 2023, nearly 70% of these economies published fully accessible public-debt data on a government website—a 20-point increase since 2020. That is a hopeful sign for the future.”