The world can finally put a number on the debt burden that is choking developing countries. This one is astronomical. The latter have in fact spent 1,400 billion dollars (1,332 billion euros) to repay their external debt in 2023 alone, according to a report published Tuesday, December 3 by the World Bank. Interest alone represents $406 billion, a twenty-year record.
In detail about the countries concerned, the institution based in Washington specifies that the most affected are the “poorest and most vulnerable countries”the very people who are beneficiaries of the IDA (International Development Association) fund, whose donor conference opens in Seoul, South Korea, Thursday, December 5. In a disturbing coincidence, these countries spent $96.2 billion in 2023 to repay their external debts, an amount close to that paid by the World Bank, in the form of donations and reduced rate loans, during the last three years.
These repayments mainly benefit private creditors. Since 2022, they have withdrawn $13 billion more from the economies of low-income countries than they lent them, while, over the same period, multilateral development banks injected $51 billion more than they received from the repayment of their reduced rate loans.
A “dysfunctional financing system”
Which makes the World Bank say that it has become a “lifeline” for these countries deserted by private creditors. “With the exception of funds from the World Bank and other multilateral institutions, money is flowing out of poor economies when it should be flowing in”laments Indermit Gill, chief economist of the World Bank. This one goes even further by denouncing a “dysfunctional financing system”in which development banks plug the gaps by becoming “lenders of last resort”. “A function for which they were not designed”he regrets. In fact, the mission of multilateral banks is to finance the development of poor countries rather than helping them repay private creditors to save them from default.
The World Bank attributes the origin of this debt crisis to the Covid-19 pandemic, which deprived States of tax revenue during confinements, while pushing them to widen their deficits to help populations hit by the crisis. Here again, it is the poor countries that have suffered the most: their external debts jumped by 18%, between 2020 and 2023, to reach $1.1 trillion.
You have 30.13% of this article left to read. The rest is reserved for subscribers.
