World Bank Warns of Record Debt Costs for Developing Countries

Soaring inflation saddled developing countries with a record $1.4 trillion in debt servicing costs last year, the World Bank said in a report published on Tuesday, detailing the precarious state faced by the world’s most vulnerable economies since the pandemic.

As central banks around the world raised interest rates to slow rising prices, poor countries with already high debt burdens saw the interest payments on the money that they owed to creditors balloon. While principal balances held steady at around $951 billion, interest payments jumped by a third, to $406 billion. That has left more countries facing fiscal crises and struggling to avoid default.

“These facts imply a metastasizing solvency crisis that continues to be misdiagnosed as a liquidity problem in many of the poorest countries,” Indermit Gill, the World Bank’s chief economist, wrote in the report. “It is easy to kick the can down the road, to provide these countries just enough financing to help them meet their immediate repayment obligations. But that simply extends their purgatory.”

More than a dozen sovereign nations defaulted on their debt in the last three years, and more than 30 of the world’s poorest countries have experienced “debt distress,” according to the United Nations. In 2023, Belarus, Ghana, Lebanon, Sri Lanka and Zambia were all in default, according to Fitch Ratings.

Global financial institutions such as the World Bank and the International Monetary Fund have been working with international lenders to help developing countries restructure their debt, but the process has been slow and painstaking. China, the world’s largest creditor, has been particularly reluctant to alter the terms of its loans as it grapples with its own economic challenges.

The Biden administration has been critical of China’s lending practices. Treasury Secretary Janet L. Yellen described them as “opaque” in an interview with The New York Times in October in which she called for accelerating debt relief. She also raised the idea of helping nations find new sources of borrowing by creating coordinated aid packages for “high-ambition countries” that want to invest in clean energy projects.