DEBT service costs are expected to rise by an average of 10% for developing countries, which will take away needed funding for development programs, the World Bank said.
“In 2022, the latest year for which data are available, low- and middle-income countries paid a record $443.5 billion to service their external public and publicly guaranteed debt. In a time of pinched government budgets, these payments divert spending away from health, education, and other critical needs,” it said in its International Debt Report.
“Debt service costs on public and publicly guaranteed debt are projected to grow by 10% for all developing countries over the 2023-24 period — and by nearly 40% for low-income countries,” it added.
The World Bank said that debt repayments rose 5% for developing countries in 2022.
The Philippine external debt stock was $111.217 billion in 2022. Long-term principal payments were at $5.671 billion with interest payments of $3.278 billion.
“Record debt levels and high interest rates have set many countries on a path to crisis. Every quarter that interest rates stay high results in more developing countries becoming distressed — and facing the difficult choice of servicing their public debts or investing in public health, education, and infrastructure,” Indermit Gill, the World Bank Group’s chief economist and senior vice-president, said.
In the Philippines, the Bangko Sentral ng Pilipinas kept the benchmark rate at a 16-year high 6.5% at its November meeting. The central bank has raised rates by 450 basis points since May 2022.
“The situation warrants quick and coordinated action by debtor governments, private and official creditors, and multilateral financial institutions — more transparency, better debt sustainability tools, and swifter restructuring arrangements. The alternative is another lost decade,” Mr. Gill added.
The bank said that in the last three years, there have been 18 sovereign defaults in 10 developing countries. Around 60% of low-income countries are also at “high risk of debt distress or already in it.”
“Interest payments consume an increasingly large share of low-income countries’ export (receipts). More than a third of their external debt, moreover, involves variable interest rates that could rise suddenly,” it said.
“Many of these countries face an additional burden: the accumulated principal, interest, and fees they incurred for the privilege of debt-service suspension under the G20’s Debt Service Suspension Initiative (DSSI). The stronger dollar is adding to their difficulties, making it even more expensive for countries to make payments. Under the circumstances, a further rise in interest rates or a sharp drop in export earnings could push them over the edge,” it added.
New financing options are also becoming increasingly slim. Last year, new external loan commitments to public and publicly guaranteed entities declined 23%.
“Countries eligible to borrow from the International Development Association (IDA) are likely to face a rough ride in the coming years: interest payments on their total external debt stock have quadrupled since 2012, to an all-time high of $23.6 billion,” the World Bank said.
“These payments are consuming an ever-larger share of export revenue, putting some countries just one shock away from a debt crisis. More than a third of this debt involves variable interest rates that could rise suddenly,” it added. — Luisa Maria Jacinta C. Jocson