World Bank warns that record debt burdens threaten developing economies

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Rising interest rates are saddling the world's poorest countries with record levels of debt and complicating investments in public health, education and infrastructure initiatives that are key to helping their populations escape poverty, the U.S. government warned Wednesday. World Bank.

In its latest report on international debt, the World Bank said low- and middle-income countries had paid $443.5 billion in principal and interest in 2022. This is the highest level in history and a 5% increase. percent from 2021. The organization projected the total would rise nearly 40 percent in 2023 and 2024. The bank estimated that more than half of the world's low-income countries were facing debt problems and called for restructure their obligations to avoid a “lost decade.”

“Record debt levels and high interest rates have put many countries on the path to crisis,” said Indermit Gill, chief economist at the World Bank Group.

The World Bank pointed to the variable interest rates on the debt that many developing countries owe and are struggling to pay as an imminent threat to their solvency. The bank also noted that the strengthening of the US dollar, which has made those countries' currencies worth less in global markets, has made payments more expensive.

Governments have defaulted on their debts 18 times in the past three years, including in places like Zambia, Sri Lanka and Lebanon. This exceeds the total number of breaches recorded in the previous two decades, underscoring how unsustainable debt burdens have become.

This situation has also made it difficult for developing countries to attract new investment and financing. According to the World Bank, new loan commitments to developing countries fell 23 percent last year to $371 billion. It was the first time since 2015 that private creditors received more money than they invested in developing countries.

The growing debt burden has put additional pressure on multilateral development institutions like the World Bank to provide low-cost loans to poor countries. International coalitions such as the Group of 20 have also been pushing to accelerate debt relief, but those efforts have moved slowly.

China, the world's largest creditor, has faced criticism for being an obstacle to debt restructuring deals due to its reluctance to take losses on its loans. Earlier this year, China reached an agreement in principle with Zambia to restructure $4 billion in debt, but the deal has not been finalized amid persistent objections over concessions from some of its creditors.

Sri Lanka, which declared bankruptcy last year, is also working on a restructuring package with creditors including China, Japan and India.

As rich countries face their own high debt burdens and global economic growth remains sluggish, relief for developing economies could remain elusive.

Treasury Secretary Janet L. Yellen said at a Wall Street Journal CEO Council event on Wednesday that debt relief was one of the most important issues the United States and China needed to work together to address, and which was a regular topic of discussion with her. Chinese counterparts.

“Many countries around the world are really suffering, especially with high interest rates due to unsustainable debt loads,” Yellen said. “They need to restructure their debt and we must cooperate to do it.”



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