Developing nations collectively spent an unprecedented $1.4 trillion servicing their foreign debt in 2023, driven by soaring interest costs that reached their highest level in 20 years, according to the World Bank’s latest International Debt Report.
The report painted a stark picture of the debt challenges faced by developing nations but also highlighted the critical role of multilateral institutions in providing much-needed financial stability and transparency. Interest payments surged nearly 33 per cent to $406 billion, further constraining national budgets already stretched thin in critical sectors such as health, education and environmental programmes.
The burden was particularly acute for the world’s poorest and most vulnerable nations — those eligible for financing from the World Bank’s International Development Association (IDA). These countries paid a record $96.2 billion in debt service during the year. While repayments of principal fell by almost 8 per cent to $61.6 billion, interest costs hit an all-time high of $34.6 billion, a fourfold increase compared to a decade ago.
On average, IDA countries now dedicate nearly 6 per cent of their export earnings to interest payments, a level not seen since 1999. In some cases, this figure soared to as much as 38 per cent, highlighting the severe strain on their economies.
As global credit conditions tightened, foreign private creditors scaled back lending to poor economies. From 2022 onwards, they received $13 billion more in debt-service payments from IDA-eligible nations than they provided in new loans. In contrast, multilateral lenders—including the World Bank—stepped up to fill the void, injecting $51 billion more than they collected in debt-service payments over the same period. The World Bank alone accounted for $28.1 billion of this support.
“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 in a statement.
The combined external debt of low- and middle-income countries reached a record $8.8 trillion at the end of 2023, an 8 per cent increase from 2020. For IDA-eligible nations, the increase was even more pronounced, with total external debt rising nearly 18 per cent to $1.1 trillion.
Borrowing costs also climbed steeply. Interest rates on loans from official creditors doubled to more than 4 per cent, while rates from private creditors rose over a percentage point to 6 per cent, the highest in 15 years. Although global interest rates have begun to ease, they remain above pre-pandemic averages, presenting ongoing challenges for developing nations.
The International Debt Report also underscored efforts to improve debt data accuracy, particularly for IDA-eligible economies. A recent reconciliation exercise, matching data reported by borrowing countries with creditor data, achieved a 98 per cent match rate, reducing errors significantly.
“Comprehensive data on the liabilities of governments can facilitate new investment, reduce corruption and prevent costly debt crises,” noted 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 worldwide, particularly in IDA-eligible economies. In 2023, nearly 70 per cent 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.”