Poor countries paid a record amount to repay their debt in 2023

The bill is hefty. Developing countries have paid a record $1.4 trillion to service their external debt in 2023, due to very high interest rates, according to a World Bank report released Tuesday. Among these countries, “the poorest and most vulnerable” paid a record $96.2 billion to service their debt, including nearly $35 billion in interest costs alone, also a record. These countries are those eligible for a loan from the International Development Association (IDA), the World Bank agency that lends to poorer countries.

High rates have pushed interest costs to their highest level in 20 years, says the World Bank, which says the rate paid on loans from official creditors has doubled to more than 4%. Rates charged by private creditors were even worse, reaching 6%, the highest in 15 years. Although interest rates have started to fall in many advanced economies, including the United States, overall, “they should remain above the average which prevailed during the decade preceding Covid-19”the World Bank said in the statement.

“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”declared Indermit Gill, chief economist of the World Bank, quoted in the press release. Faced with this high cost of servicing external debt, many developing countries borrowed more from multilateral institutions such as the World Bank, which further strained their finances. “In heavily indebted poor countries, multilateral development banks are now playing the role of lender of last resort, a role for which they were not designed”he added.