International Debt Report 2024

Introduction

The World Bank’s “International Debt Report 2024” was just issued, and it shows that the debt problem for developing countries is becoming worse. In 2023, debt servicing levels reached their highest levels in 20 years, mostly due to rising interest rates and economic difficulties.

What are Kay Highlights of International Debt Report?

International Debt Report 2024 (IDR 2024) findings, focusing on the debt statistics for low- and middle-income countries (LMICs) and a comparison among key countries:

What are the Main Decisions of International Debt Report, 2024?

1. Rising Debt Levels
   • By the end of 2023, Low- and Middle-Income countries (also known as Developing or LMICs) had a record foreign debt of USD 8.8 trillion, an 8% rise since 2020.
   • The International Development Association (IDA)-eligible nations’ external debt increased by over 18% to USD 1.1 trillion.
   • IDA is a World Bank Group organization that was founded in 1960 and offers grants and concessional loans to the world’s poorest countries that have low incomes and bad credit.
2. Rising Debt Servicing Costs
   • With interest payments rising by 33% to USD 406 billion, LMICs’ debt service expenses (principal + interest payments) reached a record USD 1.4 trillion in 2023, severely taxing national budgets.
   • Developmental difficulties have been made worse by the dramatic increase in interest payments, which has reduced expenditures in important areas including environmental sustainability, health, and education.
3. Rising Borrowing Costs
   • Interest rates for private creditors rose to 6%, the highest level in 15 years, while those for official creditors quadrupled to over 4% in 2023.
   • The financial burden on rising nations increased as a result of this interest rate increase, making it more challenging for them to repay their debt.
4. Role of Private and Official Creditors
   • Private lenders stopped financing to IDA countries as the world economic situation deteriorated, resulting in USD 13 billion more in debt payments than new loans.
   • Multilateral lenders such as the World Bank, on the other hand, helped these economies by giving USD 51 billion more than they received in loan repayments.
5. Impact on IDA-Eligible Countries
   • With debt servicing payments of USD 96.2 billion in 2023, including USD 34.6 billion in record-high interest costs—four times more than in 2014—IDA-eligible nations were left in dire straits.
   • Interest payments account for over 6% of their export revenue on average, with some assigning as much as 38%.

What is the State of the Global Debt Crisis as per UNCTADInternational Debt Report, 2024? 

1. Rapid Increase in Global Public Debt
   • By 2024, the total amount of global debt—which includes loans from governments, corporations, and households—is expected to exceed USD 315 trillion, which is three times the world’s gross domestic product.
   • The Covid-19 epidemic, rising food and energy costs, climate change, and a weak global economy characterized by slowed growth and rising bank interest rates are all contributing to the fast rise of public debt.
2. Regional Disparities in Debt Growth
   • Currently standing at USD 29 trillion (30% of global debt, up from 16% in 2010), the public debt of developing nations is expanding at double the rate of affluent ones.
3. Impact on Debt Servicing and Climate Initiatives
   • Debt servicing currently accounts for at least 8% of government revenue in around 50% of emerging nations, a percentage that has quadrupled over the last ten years.
   • The ability of poor countries to combat climate change is now limited since they spend a larger portion of their GDP (2.4%) on debt servicing than on climate efforts (2.1%).
   • By 2030, climate investments must increase to 6.9% of GDP in order to satisfy the targets of the Paris Agreement.
4. Shifts in Official Development Assistance (ODA)
   • Loans currently make up 34% of aid, up from 28% in 2012, and debt loads are rising as a result of the sharp reduction in ODA, which promotes economic development and welfare in poor nations.
   • Debt management for developing countries has gotten worse as a result of the sharp decline in debt relief financing, which went from USD 4.1 billion in 2012 to USD 300 million in 2022.

What Measures Have Been Taken to Reduce the Global Debt Crisis? 

1. Debt Management and Financial Analysis System (DMFAS) Programme
   • UNCTAD has created the DMFAS initiative, which helps developing nations enhance their debt management procedures.
   • In order to promote sustainable borrowing habits and avert future debt crises, it offers technical assistance and training to improve risk assessment, debt recording, and negotiating skills.
2. Heavily Indebted Poor Countries (HIPC) Initiative
   • In 1996, the World Bank and IMF introduced HIPC. It offers low-interest loans and debt relief to the world’s poorest countries that are struggling with unmanageable debt. Eligibility is determined by stringent requirements, including the creation of a Poverty Reduction Strategy Paper (PRSP) and a history of reform.
   • The initiative provides additional financial resources and debt-service relief to participating countries.
   • The HIPC Initiative is enhanced by the Multilateral Debt Relief Initiative (MDRI), which was launched in 2005 and aids nations in achieving the Sustainable Development Goals.
3. Global Sovereign Debt Roundtable (GSDR)
   • With the aim of fostering a shared understanding among important stakeholders on the issues of debt restructuring and sustainability, as well as strategies to overcome them, the GSDR brings together debtor nations and public and private creditors.
   • The IMF, World Bank, and G20 co-chair it.

What is Global Debt?

It refers to the entire amount of debt, both public and private, that governments, corporations, and individuals throughout the world owe.

1. Public Debt: The sum of money owing by governments to both domestic and international creditors is known as the public debt. Typically, bonds, treasury bills, or loans from foreign organizations are used to finance it.
2. Private Debt: The money that people and companies owe banks, lenders, and other financial organizations is the subject of this. Credit card debt, business bonds, school loans, and mortgages are all included.

Way Forward

• Inclusive Governance: To guarantee that their opinions are heard, low-income nations must participate more actively in decision-making processes. According to the UN Office for Sustainable Development, financial responsibility and openness are crucial for averting debt crises.
• Contingency Financing: When it comes to emergency financial assistance, the IMF is crucial. In times of crisis, policies like expanded access to Special Drawing Rights (SDRs), as suggested in a 2019 IMF report, can support developing nations’ reserves.
• Managing Unsustainable Debt: It is necessary to reinforce current debt restructuring mechanisms, such as the G20 Common Framework for Debt Treatment. Including automatic clauses that suspend debt payments in times of crisis can provide economies flexibility and help stabilize them.
• Scaling up Sustainable Financing: The transformation of Multilateral Development Banks (MDBs) should prioritize long-term funding for the Sustainable Development Goals (SDGs). Additionally, it is critical to meet assistance and climate financing obligations, especially for poor countries, and to draw private investment for sustainable initiatives like renewable energy.

Conclusion

The difficulties developing countries have in managing their debt are starkly illustrated in the World Bank International Debt Report 2024. The results highlight how urgently multilateral assistance and increased debt data transparency are needed to guarantee sustainable economic growth. Multilateral institutions play an ever-more-important role in helping these countries manage their financial difficulties by offering the assistance they need to strike a balance between debt repayment and vital development goals.

Frequentely Asked Questions(FAQs)

Sources:

• https://www.worldbank.org/en/news/press-release/2024/12/03/developing-countries-paid-record-1-4-trillion-on-foreign-debt-in-2023
• https://unctad.org/publication/world-of-debt
• https://www.oecd.org/content/dam/oecd/en/publications/reports/2024/03/global-debt-report-2024_84b4c408/91844ea2-en.pdf
• https://www.imf.org/external/datamapper/GDD/2024%20Global%20Debt%20Monitor.pdf
• https://www.cnbc.com/2023/12/13/developing-nations-spent-record-high-on-debt-in-2022-world-bank.html
• https://dea.gov.in/external-debt
• https://www.un.org/ldcportal/content/unctads-world-debt-least-developed-countries-2024