Low-income countries will face their biggest bills for servicing foreign debts in a quarter of a century this year, putting spending on health and education at risk.
Repayments on public debt owed to non-residents for a group of 91 of the world’s poorest countries will take up an average of more than 16 per cent of government revenues in 2023, rising to almost 17 per cent next year, according to a study by debt campaign group Debt Justice that is due to be published on Tuesday.
The figures — the highest since 1998 — follow a steep rise in global borrowing costs last year, when central banks sought to counter high inflation with rapid rate rises.
For many of the 91 countries, which are classified as low and lower-middle income by the World Bank, repayments on domestic debt, borrowed from lenders inside the country, make the burden of debt service overall much greater still, according to separate data from the IMF.
The rise in debt servicing costs will fuel an ongoing debate over debt forgiveness.
Multilateral lenders and foreign governments led by the IMF and the World Bank delivered far-reaching debt relief around the turn of the millennium. The Highly Indebted Poor Countries initiative wiped out the bulk of bilateral and multilateral foreign public debt for many countries.
Heidi Chow, executive director of Debt Justice, said debt repayments today were again reaching “crisis” levels for many governments, “hindering [their ability] to provide public services, fight the climate crisis and respond to economic turmoil”. The average reached a low of 6.6 per cent of revenues in 2011 and has been rising since.
Chow called for “fast and comprehensive” relief on external debts, including changes to laws governing bond contracts in England and the state of New York to force private creditors to take part in debt cancellation.
But Masood Ahmed, president of Washington-based think-tank the Center for Global Development and a former senior IMF and World Bank official, said today’s problems could not be tackled in the same way as in the past.
“It is different now,” he said. “Most borrowers want to keep their access to the multilateral lenders and, most importantly, to private-sector creditors.”
According to the World Bank data analysed by Debt Justice, Sri Lanka faces the steepest schedule of external repayments, equal to 75 per cent of government revenues this year. The country is unlikely to meet those payments following a default on its external debts last year.
Sri Lanka’s scheduled repayments on domestic debt are even greater. According to an IMF report last month, these will be equivalent to more than 27 per cent of gross domestic product in 2023. That is almost three times as much those on external debt, equal to 9.8 per cent of GDP, according to the IMF.
Zambia, which defaulted on its external debts in 2020, and Ghana, which followed last year, also have high levels of domestic debt, adding to the strain on their public finances.
Pakistan, seen by many economists as running a high risk of default, has scheduled repayments on foreign public debts this year equal to 47 per cent of government revenues, according to Debt Justice. In a report last September, the IMF said its external government debts were equal to 28 per cent of GDP and its domestic debts 37 per cent of GDP.