World Bank warned of a sharp increase in public debt spending in poor countries

(ORDO NEWS) — In the next three years, lower-middle-income countries will face a sharp increase in public debt servicing costs. Already in 2022, a group of 69 such countries will pay $62 billion in public debt, which is 35% more than in 2021. Payments for 2023 and 2024 will also be high, World Bank warns.

The World Bank has warned that the world’s poorest countries will face a three-year sharp increase in public debt servicing costs, the Financial Times writes , citing the bank’s report on the external debt of states. A group of 69 low- and middle-income countries will pay off $62 billion in public debt in 2022, a 35% increase from 2021, according to the financial institution.

The World Bank noted that payments for 2023 and 2024 will also be high, and the reasons for this development of the situation were high interest rates of central banks, a large number of bond maturities and compensation for payments that were deferred by countries during the pandemic. A surge in inflation has forced central banks to hike rates sharply this year, pushing up the global cost of borrowing, the report notes.

“Increased liquidity pressures in poor countries go hand in hand with solvency problems, causing excessive debt that is unsustainable for dozens of countries,” World Bank President David Malpass said in his opening remarks at the launch of the report. He recalled that the economic growth forecast for 2022 was halved. “The debt burden is likely to increase further,” Malpass said.

Zambia and Sri Lanka are among the countries that have defaulted on sovereign debt since the start of the pandemic, while Ghana and Egypt are close to reaching agreements with the International Monetary Fund for bailouts. The World Bank said that nearly 60% of low-income countries are at high risk of debt distress or are already experiencing one. The total public and private external debt of all low- and middle-income countries reached $9.3 trillion in 2021, up from $8.2 trillion in 2019 and $8.6 trillion in 2020, according to the report.

Many developing countries experienced a surge after they recovered from the pandemic, with their share of debt in gross national income (GNI) falling to 25.7% in 2021 from a peak of 28.5% in 2020. This figure was below the pre-pandemic level of 26.3% of GNI in 2019, according to the bank. But the debts of the poorest countries remained high both in absolute terms and as a share of GNI.

For the 69 countries eligible for assistance from the International Development Association (IDA) of the World Bank, external debt fell only slightly, to 36.2% of GNI last year from 36.8% in 2020. This is higher than the 32.8% recorded in 2019. In dollar terms, these countries’ combined debt stood at $948 billion in 2021, up from $767 billion in 2019 and $859 billion in 2020, according to the bank. They spend more than a tenth of their export earnings on servicing their long-term government and government-guaranteed foreign debt, the highest share since 2000, the World Bank said.

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