Developing countries’ debt servicing cost hit 50 year high on high interest
World Bank Group’s Chief Economist and Senior Vice President for Development Economics, Indermit Gill, therefore warns that despite the improving global financial conditions, developing countries should not deceive themselves as they are not out of danger.
Developing countries paid out $741 billion (Sh96.2 trillion) more in principal and interest on their external debt than they received in new financing between 2022 and 2024.
The record marks the largest gap in at least 50 years, according to the World Bank’s latest International Debt Report.
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Despite the heavy outflows, most countries gained some breathing room on their debt in 2024, as interest rates peaked and bond markets opened up again.
“This enabled many countries to stay off the risk of default by restructuring their debt,” the lender said.
In all, developing countries restructured $90 billion (Sh11.7 trillion) in external debt in 2024, more than at any time since 2010.
Bond investors, meanwhile, pumped in $80 billion (Sh10.4 trillion) more in new financing than they received in principal repayments and interest.
This helped several complete multi-billion-dollar bond issuances.
However, the funds came at a high price, interest rates hovered around 10 per cent, about double those before 2020.
The average interest rate that developing economies will pay to their official creditors on their newly contracted public debt in 2024 stood at a 24-year high.
The average paid to private creditors was at a 17-year high.
In all, these nations paid a record $415 billion in interest alone, resources that could have gone to schooling, primary healthcare, and essential infrastructure.
For instance, an average of one out of every two people in the most highly indebted countries was unable to afford the minimum daily diet necessary for long-term health.
World Bank Group’s Chief Economist and Senior Vice President for Development Economics, Indermit Gill, therefore warns that despite the improving global financial conditions, developing countries should not deceive themselves as they are not out of danger.
“Their debt build-up is continuing. Policymakers everywhere should make the most of the breathing room that exists today to put their fiscal houses in order instead of rushing back into external debt markets.”
Regionally, Sub-Saharan Africa, one of the world’s most debt-stressed regions, recorded a notable rise in net inflows, which nearly tripled in 2024 to $48.7 billion (Sh6.3 trillion), driven largely by South Africa’s strong uptake.
Excluding South Africa, net transfers for public-sector borrowers in the region surged 69.2 per cent to $15.6 billion (Sh2 trillion), reflecting renewed market access and increased multilateral support.
Consequently, the region’s total external debt stock rose 3.4 per cent during the year to $900.8 billion (Sh116.9 trillion).
However, the pace of accumulation slowed among other Sub-Saharan African countries, rising just 2.8 per cent, down from 3.9 per cent in 2023 and a 4.8 per cent average in 2021–2022.
The moderation partly reflects the sizable upfront haircuts in Ghana and Zambia’s restructuring deals, as well as Somalia’s debt forgiveness under the Heavily Indebted Poor Countries (HIPC) initiative.
Collectively, these measures shaved $5 billion (Sh649 billion) off the region’s long-term debt stock in 2024.
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