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External debt of low- and middle-income countries (LMICs) touched a record US$8.8 trillion in 2023, while debt servicing costs for LMICs also reached an all-time high.
That’s according to the 2024 edition of the International Debt Report, the World Bank’s premier annual publication on debt. For five decades the IDR, along with the associated International Debt Statistics (IDS) database, has helped shape policies in development finance by sharing timely and comprehensive external debt data and analysis with the international community. Drawing on data collected through the World Bank’s Debtor Reporting System, the IDR has tracked evolving borrowing patterns and new lending instruments over the years, measured the impact of initiatives to relieve debt burdens, and promoted best practices in debt recording and reporting.
The newly published IDR 2024 includes an analysis of end-2023 external debt flows and debt stock positions as well as the macroeconomic and debt outlook for 2024 and beyond, and updates on the debt transparency agenda.
According to IDR 2024, LMICs accumulated significant debt during the pandemic years, driven by the need to scale up health services and provide economic relief amid sharp declines in economic activity and government revenues. This trend persisted in 2023 as countries continued to navigate the post-pandemic recovery and address mounting development challenges.
Debt levels for LMICs hit a record US$8.8 trillion in 2023.
The percent increase was even larger for the poorest countries – those eligible for assistance from the International
Development Association (IDA).
Since the onset of the pandemic, multilateral lenders have become the central financial lifeline for LMICs amid a slowing of private lending. The composition of LMICs’ external debt portfolios has changed significantly since 2019 as multilateral creditors including the International Monetary Fund, the World Bank, and regional development banks stepped up to provide emergency relief and balance of payments support in times of crisis.
Meanwhile, borrowing from private creditors fell sharply during the crisis due to adverse market conditions, investor retreat from frontier markets, and – in countries eligible for International Development Association (IDA) assistance – a concentration on borrowing from official creditors on concessional terms to support debt sustainability. After the increase in risk aversion displayed in 2022, net debt flows from private creditors to LMICs turned positive in 2023, increasing US$127 billion to a total of US$62.4 billion, which indicated a growing appetite among these private groups to lend to LMICs once again.
Multilateral creditors have stepped up as providers of emergency relief in times of crisis.
Net debt outflows from LMICs to bondholders were US$1.2 billion in 2023, indicating that investor confidence has yet to return to pre-pandemic levels.
Pandemic-induced economic bottlenecks across the globe, coupled with fiscal policy actions taken by governments in reaction to COVID-19, helped drive global inflation higher while reducing fiscal space for many countries, especially LMICs. Moreover, monetary policy actions in response to rising global prices – by high-income country central banks in particular – drove interest rates much higher. This rise in global rates significantly increased debt service burdens for LMICs with existing long-term debt contracted on variable rates.
Interest payments on long-term variable rate loans were 14 percent of total debt service in 2023, up from 10 percent the previous year— while rendering new external borrowing more expensive.
LMICs now carry significantly higher debt levels than in the decade before the pandemic, and the burden of servicing this debt has grown, too. Debt service as a share of gross national income (GNI) has risen sharply, straining already limited resources and leaving less room for investments in health, education, and infrastructure. This growing challenge underscores the dual impact of elevated debt: higher borrowing costs and tighter constraints on development priorities.
In 2023, LMICs spent 3.7 percent of their gross national income to service their debt.
1.1 percent of gross national income was spent on interest payments alone, the highest amount in the last two decades.
While LMIC economies are growing again, risks remain, including escalation of armed conflicts, further trade fragmentation, persistent global inflation, a weakening of global risk appetite, and weak growth in major LMICs, especially China. Any one of these could drive debt burdens higher for many LMICs.
For this reason, accurately tracking LMICs’ debt levels and debt trends is more important today than ever. Access the full IDR 2024 and related IDS database here.
Source: blogs.worldbank.org
