Lower-income countries’ debt crisis is getting worse, World Bank says
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Debt pains are growing in lower-income nations, according to the World Bank’s annual International Debt Report, out Tuesday.
Why it matters: Fiscal crises can lead to both political instability and rising poverty.
State of play: For these lower-income countries, the economic burden posed by interest payments has climbed back up to where it was in 2000 — a point at which things had gotten worrisome enough that the IMF had just created a debt forgiveness initiative.
By the numbers: Lower-income countries are now once again plowing around 10% of their export revenues into servicing external government debt — after that figure dipped below 3% in 2011, as the chart above shows.
- And low-income countries' total external debt grew to an average of 48.5% of gross national income in 2021, from 17% in 2010, the report says.
The big picture: Governments around the world loaded up on debt during the pre-COVID era of rock-bottom interest rates.
- Now, refinancing is much more expensive, just as global economic growth is slowing — and weaker currencies mean the burden of their dollar-denominated debt is ballooning.
The bottom line: "The latest numbers mean that all the progress made on the debt front since the beginning of the century has been lost," says Jeremy Mark, senior fellow with think tank The Atlantic Council and a former IMF official.
- "And billions of dollars that could go to infrastructure development, education, health and other badly needed public goods will instead go to creditors," he adds.
Go deeper: Sri Lanka's debt crisis matters to the world
