Developing country debt has more than doubled in 10 years

The World Bank announced today (Tuesday) that the debts of developing countries have more than doubled over the past decade, to reach $9,000 billion in 2021, stressing that the risks of these countries falling into crisis have increased, according to Agence France-Presse.

In its annual debt report, it was stated that about 60 percent of the poorest countries are about to face a debt crisis, or are already facing it, especially in light of the depreciation of their currencies against the dollar in the exchange market. Because the debt is often denominated in dollars, but also because of the high interest rates since the beginning of the year.

“The debt crisis facing developing countries has intensified,” World Bank President David Malpass said in a statement. “Many of these countries face financial risks and political instability, with millions of people falling into poverty,” if steps are not taken to help them. “The picture is bleak for developing countries… Securing electricity, fertilizers, food and money will be limited for a long time,” he added.

An additional difficulty facing the poorest countries is that they now spend more than 10 percent of their annual income from exports to pay down their debts, the highest level since the beginning of the third millennium. It also has to make large payments. In 2022, countries that can borrow from the International Development Association, part of the World Bank, must repay more than $62 billion, a significant increase over a year. A third of this amount will go to China.

The creditor composition of developing countries has changed dramatically, according to the World Bank. Until a short period of time, debts were largely in the hands of the member states of the Paris Club (about twenty countries, including the Group of Seven and Russia), while now they are mainly in the hands of the private sector (61 percent).

Many countries that are not members of the “Paris Club”, led by China and India, and many Gulf countries witnessed an increase in their share, so that China alone sometimes represents half of the loans from another country.

The multiplicity of lenders increases borrowing costs for the countries concerned, and makes it more difficult to restructure their debts before they get out of control, as was the case recently in Sri Lanka, often with disastrous consequences for the countries involved. Another problem is information about debt, particularly between countries, which is often incomplete.

“The lack of transparency is one of the reasons countries fall into crisis,” said Andremit Gill, chief economist at the World Bank. He added, “Transparency allows for more effective debt rescheduling, so that countries quickly restore their financial stability and growth.”