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(Ecofin Agency) – U.S. monetary policy in 2022 boosted the dollar, making it more costly for developing countries to repay debts in foreign currencies. As a result, debt for IDA-eligible countries increased by 18%, reaching $1.1 trillion in 2023.
In 2023, developing countries paid $1.4 trillion in external debt servicing, increasing economic pressure and limiting investments in critical social sectors. This data comes from the latest World Bank report on international debt, released on December 3.
According to the report, interest rates rose sharply, exceeding 4% for loans from official creditors and 6% for private creditors—the highest levels in 15 years. This increase pushed interest payments to $406 billion, significantly straining national budgets and reducing spending on health, education, and environmental programs.
The World Bank explained that the tightening of U.S. monetary policy in 2022 affected currency exchange rates and drove up the value of the U.S. dollar against other currencies. This trend continued in 2023, making it more expensive for low- and middle-income countries to repay debts in foreign currencies as their local currencies depreciated.
The most vulnerable countries, including those eligible for International Development Association (IDA) loans, saw their interest costs quadruple over the past decade, reaching $34.6 billion in 2023.
In response to tightening credit conditions, the World Bank and other multilateral institutions provided an additional $51 billion in support for the most vulnerable economies between 2022 and 2023. Meanwhile, private creditors collected $13 billion more in repayments than they disbursed in new loans.
World Bank Chief Economist Indermit Gill criticized the current system, calling it “dysfunctional.” He stated, “In highly indebted poor countries, multilateral development banks are now acting as a lender of last resort, a role they were not designed to serve (…) except for funds from the World Bank and other multilateral institutions, money is flowing out of poor economies when it should be flowing in”.
Despite these challenges, some African nations have taken significant steps to manage their debts. In 2023, Ethiopia temporarily suspended its debt service payments and began restructuring its $1 billion sovereign bond. Ghana launched a domestic debt exchange program, lowering costs and extending bond maturities. Somalia reached the completion point under the Heavily Indebted Poor Countries (HIPC) Initiative, paving the way for new international financing.
However, the external debt burden in Sub-Saharan Africa continues to grow, with the total debt stock reaching $864 billion in 2023, according to World Bank data. Servicing this debt consumed 16% of export revenues and 4% of gross national income.
By the end of 2023, the total external debt of developing countries stood at $8.5 trillion, an 8% increase since 2020. For IDA-eligible countries, external debt rose nearly 18%, reaching $1.1 trillion.
The United Nations forecasts that African nations’ external debt service payments will reach $89.4 billion in 2024. This growing burden threatens the investments needed to achieve the Sustainable Development Goals (SDGs).
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