The World Bank released its annual report on external debt statistics and analysis for 121 low- and middle-income countries of the world that report to the World Bank’s Debt Information System. (DRS).
This time, the international entity began by issuing an alert due to the global economic situation’s impact on foreign debt. The World Bank stated that rising interest rates and slowing global growth risk driving many countries into a debt crisis. So, around 60% of the poorest countries are already running a high risk of debt distress or are already in trouble.
“The debt crisis facing developing countries has intensified,” said World Bank Group President David Malpass. “A comprehensive approach is needed to reduce debt, increase transparency and facilitate faster restructuring so countries can focus on spending supporting growth and reducing poverty. Without it, many countries and their governments face a fiscal crisis and political instability, with millions of people falling into poverty.
The debt report is that, at the end of 2021, the external debt of these developing economies totaled US$9 trillion, more than double that of a decade ago. Meanwhile, the study stresses, during the same period, the total external debt of IDA client countries nearly tripled to $1 trillion.
And it is that the important reason behind the more significant impact that the emerging economies are having under this situation is due to the devaluation of the local currency that many countries presented before the strengthening of the dollar.
“In 2022, global growth is slowing sharply. Amid one of the most internationally synchronous episodes of monetary and fiscal policy tightening the world has seen in 50 years, the risk of a global recession has been on the rise.” currency depreciations have made matters worse for many developing countries whose debt is denominated in US dollars,” the report says.
But in addition, the debt request trend has changed since the debt has grown in recent years. Based on the report, low- and middle-income economies have become increasingly indebted to private creditors, especially bondholders. At the end of 2021, 61% of the US$3.6 trillion in long-term public and publicly guaranteed external debt was owed to private creditors, up from 46% in 2010.
Debt in Latin America and the Caribbean
The total debt that Latin America and the Caribbean countries have is US$10.4 trillion, contracted over 12 years, from 2010 to 2021; the last annual debt report was US$1.991 trillion (2021).
All this is a problem for Latin America, a region whose denominator is precarious in providing essential services in most countries. So debt service payments take away scarce fiscal resources from health, education, social assistance, and investment in infrastructure.
The biggest lenders
By the end of 2021, low- and middle-income countries owed 61% of their public and publicly guaranteed debt to private creditors, an increase of 15 percentage points over 2010.
According to the report, China, a country not a member of the Paris Club, is the largest bilateral lender to low- and middle-income countries, lending an average of US$19 billion annually over the past ten years, almost 1/3 of all bilateral loans, To those countries.
Among other Paris Club members, Russia averaged $6.1 billion in annual borrowing, Saudi Arabia $2.5 billion, and India $2.4 billion. That compares with an average of $12.9 billion in yearly borrowing from Japan, $5.3 billion from France, and $3.9 billion from Germany (which are members of the Paris Club).