Developing Countries Struggle With Record $443 Bln Debt Pressures: World Bank

Developing countries spent a record $443 billion to service external debt in 2022 as global borrowing costs surged, straining budgets and raising the risk of debt crises, according to the World Bank’s latest International Debt Report.

The report added that the debt payment now exceeds pre-pandemic levels. Due to scarce resources, indebted governments have had to reduce expenditure on vital areas such as healthcare, education, and infrastructure.

Higher interest rates are squeezing developing economies, already struggling against inflation and currency depreciations.

Furthermore, the report highlighted that in terms of the debt crisis, the poorest 75 countries eligible for aid from the World Bank International Development Association (IDA) received the heaviest blow.

These countries paid a record $89 billion in debt service last year, and their interest expenses quadrupled over the past decade to an all-time high of $23.6 billion in 2022.

"Record debt levels and high interest rates have set many countries on a path to crisis. Every quarter that interest rates stay high results in more developing countries becoming distressed” said World Bank Chief Economist Indermit Gill.

Meanwhile, approximately 60 percent of low-income nations are at risk of debt distress or are already distressed. Such a predicament limits these nations' ability to cope with economic shocks.

The World Bank also noted that governments, creditors, and institutions -- such as the World Bank -- must collaborate on issues like transparency, analytics, and restructuring to avoid another "lost decade" of economic development.

It also highlighted that debt servicing costs rose by 5 percent year-on-year (YoY) across low and middle-income countries in 2022.

The report further explained that since 2020, at least 10 countries defaulted on paying their debts and that the number of such countries has exceeded that recorded in the previous two decades combined.

Unless the trajectory changes, the World Bank warned, developing nations will face more substantial risks of debts and defaults on payment as more challenging times lie ahead.

Egypt According to the International Debt Report 2023, Egypt’s total debt surged to $163.1 billion in 2022 from $145.99 billion in 2021 and $132.57 billion in 2020.

Last year, as a percentage of its exports and gross national income (GNI), Egypt's external debt stocks hit 210 and 35 percent, respectively, according to the report.

Moreover, the report highlighted that as a percentage of exports and GNI, the country's debt service recorded 23 and 4 percent, respectively.

According to the Central Bank of Egypt (CBE), Egypt’s external debt reached $164.73 billion by the end of June. Egypt should pay $29.23 billion in external debt service in 2024, $19.43 billion in 2025, and $22.94 billion in 2026.

In addition, Egypt, according to the CBE, owes $52.9 billion to multilateral institutions, including $21.2 billion (constituting 40 percent of the debt) to the International Monetary Fund (IMF) alone.

Debt service, the CBE noted, accounted for 60.3 percent of Egypt’s total expenditure during the first quarter of the fiscal year (FY) 2023/2024, which ended in September.

*Distribution of Egypt's debt by creditors until 2022. World Bank.

Middle East and North Africa In 2022, the total external debt stocks of the Middle East and North Africa region amounted to $431 billion. This amount accounted for approximately 27 percent of the region's GNI, while debt service represented around 3 percent of the region's exports and GNI, the World Bank’s report said.

Between 2010 and 2022, the total external debt stocks of the region increased from $210 billion to $431 billion. Long-term external debt stocks and debts with a maturity period of more than one year decreased slightly from $299 billion in 2021 to $290 billion in 2022, as per the report.

On the other hand, the report pointed out that public and publicly guaranteed debt accounted for a significant portion of the region's external debt. In 2022, public debt amounted to $256 billion, with official creditors contributing $147 billion and private creditors $109 billion.

Multilateral institutions, such as the World Bank, provided $79 billion in debt, while bilateral creditors, including countries like Japan and Germany, contributed $68 billion, according to the report.

Short-term external debt stocks, with a one-year or less maturity period, increased from $70 billion in 2021 to $92 billion in 2022.

The report further noted that the Middle East and North Africa received $31 billion in debt and equity inflows in 2022, including $17 billion in net debt inflows and $13 billion in net equity inflows.

In conclusion, the report stated that the region's population stood at approximately 412 million in 2022, and its GNI amounted to $1.595 trillion.