Debts of Low-Income Countries Hit $744bn in 2019

Image Credit: Finance and Markets

By Adedapo Adesanya

The World Bank has disclosed that the total external debts of Debt Service Suspension Initiative (DSSI)-eligible countries increased within 12 months by 9.5 per cent to $744 billion in 2019.

This was disclosed in the latest International Debt Statistics 2021 released by the Bretton Wood Institution, noting that the figure was equivalent to one-third of the countries’ combined gross national income.

The DSSI was intended to help developing countries with the overwhelming debt they owed to bilateral lenders.

“Lending from private creditors was the fastest-growing component of the external debt of DSSI-eligible borrowers, up five-fold since 2010.

“Obligations to private creditors totalled $102 billion at the end of 2019.

“The debt stock of DSSI-eligible countries to official bilateral creditors composed mostly of Group of 20 (G-20) countries, reached $178 billion in 2019 and accounted for 27 per cent of the long-term debt stock of low-income countries,” the report said.

According to the report, this highlights an urgent need for creditors and borrowers alike to collaborate to stave off the growing risk of sovereign-debt crises triggered by the COVID-19 pandemic.

It said that the pace of debt accumulation for these countries was near twice the rate of other low- and middle-income countries in 2019.

The report said that in response to an urgent need for greater debt transparency, this edition provided more detailed and disaggregated data on external debt than ever before in its nearly 70-year history.

It noted that details include breakdowns of what each borrowing country owes to official and private creditors in each creditor country and the expected month-by-month debt-service payments owed to them through 2021.

The World Bank said that before the onset of the COVID-19 pandemic, rising public debt levels were already a cause for concern, particularly in many of the world’s poorest countries as discussed in its Four Waves of Debt report published in December 2019.

“Responding to a call from the World Bank and the International Monetary Fund, the G20 endorsed the DSSI in April 2020 to help up to 73 of the poorest countries manage the impact of the COVID-19 pandemic.

“The debt stock of DSSI-eligible countries to official bilateral creditors, composed by mostly G-20 countries, reached $178 billion in 2019 and accounted for 17 per cent of long-term net debt flows to low and middle-income countries.

“Within the G-20 creditor group, there have been some important shifts characterised by a marked increase in lending by G-20 member countries that are themselves middle-income countries,” it stated.

Citing China as an example, it said that though it was by far the largest creditor, it had seen its share of the combined debt owed to G-20 countries rise from 45 per cent in 2013 to 63 per cent at end-2019.

It said that over the same period, the share for Japan, the second-largest G-20 creditor, had remained broadly the same at 15 per cent.

The bank said that the 2021 IDS data released also reflects the progress made to increase coverage of complex debt instruments, given their rising prominence in the debt profiles of developing countries.

“The central bank and currency swap arrangements that represent loans from other central banks also occur in low and middle-income countries.

“The World Bank is working to ensure that these debt instruments are captured in the IDS dataset.”

The report, however, said that increased debt transparency would help many low and middle-income countries assess and manage their external debt through the current crisis and work with policymakers toward sustainable debt levels and terms.

Speaking on this, Mr David Malpass, the World Bank Group President said that achieving long-term debt sustainability would depend on a large-scale shift in the world’s approach to debt and investment transparency.

“The time has come for a much more comprehensive approach to tackling the debt crisis facing the people in the poorest countries – one that involves debt-service suspension as well as broader efforts such as debt-stock reduction and swifter debt-restructuring, grounded in greater debt transparency.”

Mrs Carmen Reinhart, World Bank Chief Economist said debt enables governments to have extra resources they needed to invest in health systems, education, or infrastructure.

“If you have a debt problem, all those ambitions suffer. That is why it is important to get the debt unto sustainable ground as quickly as possible. We cannot afford another lost decade.”

The report, however, said that greater debt transparency was critical to productive investment and debt sustainability.

It, therefore, called for full transparency of the terms of the existing and new debt and debt-like commitments of the governments of the poorest countries.

The bank also urged creditors and debtors alike to embrace this transparency to facilitate analysis that would enable countries to identify sovereign-debt levels consistent with growth and poverty reduction.

The bank said that as one of the largest sources of funding and knowledge for developing countries, it was taking broad and fast action to help developing countries strengthen their pandemic response.

“It is supporting public health interventions, working to ensure the flow of critical supplies and equipment and helping the private sector continue to operate and sustain jobs.

“It expects to deploy up to $160 billion in financial support over 15 months to help more than 100 countries protect the poor and vulnerable, support businesses and bolster economic recovery,” the World Bank noted.

The organisation said this includes $50 billion of new International Development Association (IDA) resources through grants and highly concessional loans.

Adedapo Adesanya is a journalist, polymath, and connoisseur of everything art. When he is not writing, he has his nose buried in one of the many books or articles he has bookmarked or simply listening to good music with a bottle of beer or wine. He supports the greatest club in the world, Manchester United F.C.

more recommended stories

%d bloggers like this: