Debt burden of poorest countries hits 30-year high
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One out of every six dollars the world's poorest governments received in revenue in 2024 went straight to foreigners in the form of debt service, per a new analysis from Debt Justice.
Why it matters: That number, which is at a 30-year high, represents "a devastating diversion of resources away from areas critical for long-term growth and development," per World Bank chief economist Indermit Gill.
The big picture: The 84 poorest countries in the world do include some, like India or Vietnam, that have very little external debt.
- More common, however, is the plight of countries such as Pakistan or Egypt, both of which spent over 40% of their government revenues on external debt service last year.
Zoom in: Laos is in particularly bad shape, with an external debt of $13.8 billion, most of which is owed to China.
- The small landlocked country borrowed billions of dollars from China to cover its share of Belt and Road projects, including a high-speed rail link from Bangkok to Guangzhou and Beijing.
- Scheduled payments on that debt will amount to over 70% of government revenues next year, in the unlikely event that they're paid in full.
- In lieu of cash payments, China is likely to demand ownership of Laotian land and infrastructure.
Between the lines: A lot of debt was wiped out in the 2000s under the HIPC (heavily indebted poor countries) program — but that only seems to have opened up the temptation to borrow more from China in particular.
- Low-income countries are rarely able to tap the international bond markets, which means that when they can't make their external debt obligations, they generally end up in arrears to other countries, including China.
- Debt renegotiation takes place under the oversight of the IMF, with sovereign creditors generally grouped together under the Paris Club.
- China, however, is not a member of the Paris Club — something that has made sovereign debt restructurings particularly fraught in recent years.
The bottom line: As Gill has written, "the poorest countries facing debt distress need debt relief if they are to have a shot at lasting prosperity."
