Developing countries, including Nigeria, paid $741billion more in principal and interest on their external debt they received in new financing between 2022 and 2024, the World Bank has disclosed.
The Bank said in its latest International Debt Report on Wednesday that the debt outflows marked the largest gap in at least 50 years.
In spite of the heavy outflows, the Bank said most countries enjoyed some relief in the forms of concessions in 2024 as interest rates peaked and international bond markets opened up again.
The reliefs, the Bnak explained, enabled many of the countries to stave off the risk of default through debt restructuring, with developing countries collectively restructuring $90billion in external debt, the highest level since 2010.
The report said that bond investors provided significant support, injecting $80billion more in new financing than they received in repayments and interest, helping several complete multi-billion-dollar bond issuances.
The Bank, however, said that the funds came at a high price, with interest rates averaging around 10 percent, about double the pre-2020 levels.
The World Bank Group Chief Economist and Senior Vice-President for Development Economics, Indermit Gill, was quoted as saying that global financial conditions might be improving, but developing countries were not out of danger.
“Their debt build-up is continuing, sometimes in new and pernicious ways. 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.
The report revealed that the external debt of low- and middle-income countries rose to a historic $8.9 trillion in 2024, with 78 countries, mainly in the low-income category, who are eligible to borrow from the World Bank’s International Development Association (IDA), already owing a record $1.2 trillion.
The report said the average interest rates that developing economies would pay their official creditors on newly contracted public debt in 2024 stood at a 24-year high and a 17-year high from private creditors.
The report which highlighted the human cost of rising debt burdens on developing nations, said most of them spent a record $415billion, which could have gone into education, healthcare and essential infrastructure development on interest payments alone.
In the most heavily indebted countries, the Bank said one out of every two persons could not afford the minimum daily diet required for long-term health, while access to low-cost financing became harder in 2024, except from multilateral development banks like the World Bank, which was the single-largest financier of IDA-eligible countries.
The report said that the World Bank provided $18.3billion more in new financing to IDA-eligible countries than it received in principal and interest payments and also disbursed a record $7.5billion in grants.
“Official bilateral creditors, mostly governments and government-related entities, retreated after participating in a wave of restructurings that cut long-term external debt of some countries by as much as up to 70 per cent,” the report said.
Besides, it disclosed that bilateral creditors received $8.8 billion dollars more in principal and interest in 2024 than they disbursed in new financing for developing countries.
Other details of the report showed that low-cost financing options were dwindling, with many developing countries turning inwards to local commercial banks and financial institutions for funding of programmes and activities.
Out of the 86 countries with domestic data available, the report said more than half recorded faster growth in domestic government debt than external government.
The World Bank Group Chief Statistician and Director, Development Data Group, Haishan Fu, said the rising tendency of many developing countries to tap domestic sources for their financing needs reflected an important policy accomplishment.
Resorting to domestic sources of financing, the report noted, shows that their local capital markets are evolving, fears are being expressed that heavy domestic borrowing could spur domestic banks to load up on government bonds when they should be lending to the private sector.
“Domestic debt also comes with shorter maturities, which can raise the cost of refinancing. Governments should be careful not to overdo it,” Fu said.
The report further revealed that heavily indebted countries with external debt exceeding 200 percent of export revenue, an average of 56 percent of the population could not afford a minimum daily diet.
About 18 of the countries were IDA-eligible, where nearly two-thirds of the population could not afford the necessary diet. (NAN)
