Rudolph Angler In 2023, developing countries allocated $1.4 trillion (€1.3 trillion) to foreign debt obligations, a record-breaking sum, according to the World Bank. Many of these nations, burdened by pandemic-related borrowing, faced rising interest rates, currency depreciation, and global economic uncertainties.
The poorest nations, supported by the World Bank’s International Development Association (IDA), paid $96.2 billion (€91.9 billion) to service their debts. Interest payments alone reached an unprecedented $34.6 billion (€33.05 billion). On average, IDA-eligible nations spent nearly 6% of their export earnings on interest—the highest level since 1999.
Private Creditors Pull Back While Debt Risks Mount
Private creditors have reduced lending to poorer countries, prioritizing safer, higher-yield investments. They withdrew more funds from debt repayments than they provided in new loans during recent financial instability.
In contrast, multilateral institutions like the World Bank offered critical support. Between 2022 and 2023, these organizations disbursed $51 billion (€48.71 billion) more to IDA-eligible nations than they collected in repayments. The World Bank alone contributed $28.1 billion (€26.84 billion).
“The risk-reward balance is too uneven,” said Indermit Gill, World Bank Chief Economist. “Private creditors reap rewards, while multilateral institutions and government lenders shoulder the risk.”
Despite rising distress, most countries avoided default in 2023. To preserve credit ratings, many reduced budgets for health, education, and climate initiatives. Some even used World Bank funds to repay other creditors.
Inequality Deepens Amid Economic Pressures
Developing nations struggled more than wealthier countries in the post-pandemic era. Smaller fiscal stimulus efforts and weaker healthcare systems compounded their challenges. Rising geopolitical tensions and protectionist trade policies further threaten growth prospects.
Encouragingly, low- and middle-income economies excluding China reduced their debt-to-Gross National Income (GNI) ratio by 0.8 percentage points in 2023. However, IDA-eligible nations experienced an increase of 1.9 percentage points.
The World Bank advocates debt restructuring to protect social investments. “Countries need mechanisms similar to businesses for debt restructuring,” said Gill. He cautioned, “Without such measures, global development goals remain at risk.”