The debt burden of the world’s 47 low-income countries, including Nigeria rose 12 per cent to a record $860 billion in 2020, according to a new report released at the ongoing hybrid annual meetings of the World Bank/Intenational Monetary Fund (IMF) in Washington DC, United States of America.
The new International Debt Statistics (IDS) 2022 report observed that governments around the world responded to the COVID-19 pandemic with massive fiscal, monetary, and financial stimulus packages.
It added that while these measures were aimed at addressing the health emergency, cushioning the impact of the pandemic on the poor and vulnerable and putting countries on a path to recovery, the resulting debt burden of the world’s low-income countries rose 12 per cent to a record $860 billion in 2020.
The report noted that greater debt transparency is critical in addressing the risks posed by rising debt in many developing countries. To facilitate transparency, International Debt Statistics 2022 was expanded to provide more detailed and disaggregated data on external debt than ever before.
The data now gives the breakdown of a borrowing country’s external debt stock to show the amount owed to each official and private creditor, the currency composition of the debt, and the terms on which loans were extended.
For DSSI-eligible countries, the data set was expanded to include the debt service deferred in 2020 by each bilateral creditor and the projected month-by-month debt-service payments owed to them through 2021. According to the World Bank report, even prior to the pandemic, many low- and middle-income countries were in a vulnerable position, with slowing economic growth, public and external debt at elevated levels.
The report revealed that external debt stocks of low- and middle-income countries combined rose 5.3 per cent in 2020 to $8.7 trillion. The report indicated that the deterioration in debt indicators was widespread and impacted countries in all regions.
Across all low- and middle-income countries, the rise in external indebtedness outpaced Gross National Income (GNI) and export growth. Low- and middle-income countries’ external debt-to-GNI ratio (excluding China) rose to 42 per cent in 2020 from 37 per cent in 2019, while their debt-to-export ratio increased to 154 per cent in 2020 from 126 per cent in 2019.
In response to the unprecedented challenges posed by the pandemic and at the prompting of the World Bank Group and the International Monetary Fund (IMF) in April 2020, the G20 launched the Debt Service Suspension Initiative (DSSI) to provide temporary liquidity support for low-income countries.
The G-20 countries agreed to extend the deferral period through the end of 2021. In November 2020, the G20 agreed on a Common Framework for Debt Treatments beyond the DSSI, an initiative to restructure unsustainable debt situations and protracted financing gaps in DSSI-eligible countries.
Overall, in 2020, net inflows from multilateral creditors to low- and middle-income countries rose to $117 billion, the highest level in a decade. Net debt inflows of external public debt to low-income countries rose 25 per cent to $71 billion, also the highest level in a decade.
Multilateral creditors, including the IMF, provided $42 billion in net inflows, while bilateral creditors accounted for an additional $10 billion.
The new IDS report called for an encompassing approach to managing debt to help low- and middle-income countries assess and curtail risks and achieve sustainable debt levels.
The World Bank Group President, David Malpass, said: “We need a comprehensive approach to the debt problem, including debt reduction, swifter restructuring and improved transparency. Sustainable debt levels are vital for economic recovery and poverty reduction.”
Similarly, Senior Vice-President and Chief Economist of the World Bank Group, Carmen Reinhart, said: “Economies across the globe face a daunting challenge posed by high and rapidly rising debt levels. Policymakers need to prepare for the possibility of debt distress when financial market conditions turn less benign, particularly in emerging market and developing economies.”
The World Bank will soon also publish a new Debt Transparency in Developing Economies report that takes stock of debt transparency challenges in low-income countries and lays out a detailed list of recommendations to address them.
International Debt Statistics is a longstanding annual publication of the World Bank featuring external debt statistics and analysis for the 123 low- and middle-income countries that report to the World Bank Debt Reporting System (DRS).
The Department for International Development (DFID), in August 2017, listed Nigeria and 46 others (mostly from Africa) as Low-Income Countries (LIC).
They include Afghanistan, Bangladesh, Benin Republic, Burkina Faso, Burundi, Central African Republic, Chad, Comoros, Côte d’Ivoire and Democratic Republic of Congo.
Others are Eritrea, Ethiopia, Ghana, Guinea, Guinea-Bissau, Haiti, Honduras, Kenya, Kyrgyz Republic, Lesotho, Liberia, Madagascar, Malawi, Mali, Mauritania, Mozambique, Myanmar, and Nepal.
Also on the LIC list are Niger, Pakistan, Papua New Guinea, Republic of Congo, Rwanda, Senegal, Sierra Leone, Somalia, South Sudan, Sudan, Tajikistan, Tanzania, The Gambia, Togo, Uganda, Yemen, Zambia and Zimbabwe.