The International Monetary Fund (IMF) has stated that total debt in Low-Income Developing Countries (LIDCs) represents 88% of the Gross Domestic Product (GDP) of the countries.
The institution disclosed this in its 2023 Global Debt Monitor report on the state of global debt titled; Global Debt Is Returning to its Rising Trend published recently.
According to the global financial institution, while global debt fell by 10% about $ 200 billion to now represent 238% of global GDP, for low-income developing increased by 0.5% and now makes up 88% of their GDP.
It stated thus,
- “Debt in low-income developing countries (LIDCs) have not fallen. Total debt increased by about 0.5% of GDP to 88% of GDP in 2022. This was driven by a similar increase in private debt, which reached a new high of 39% of GDP in 2022.”
The Fund noted that in low-income developing countries, the debt burden has been exacerbated by the exchange rate depreciation and the need to finance the cost-of-living crisis caused by the pandemic and other geopolitical events globally.
Developing countries advised to increase tax collection capacity
The IMF further warned that unless developing countries improve their tax capacity and revenue mobilization capacity, they will find it difficult to manage their debt even with a relatively low debt profile.
It stated thus,
- “LIDCs, in particular, may face greater challenges in managing debt vulnerabilities even at relatively low debt levels. In 2022, LIDCs spent 23 per cent of tax revenues on average just to make interest payments, as their tax revenues have remained stagnant while debt burdens have risen. Improving tax capacity and revenue mobilization should be a key priority to restore fiscal sustainability.”
Global debt expected to rise
On the state of global debt, the fund noted that global debt presently stands at $235 trillion- a decline of 20% in the last 2years.
However, global debt still constitutes around 92% of global GDP- a decline of 3.6% in the last year.
However, it warned that global debt might be on a rising trend in the medium term. The fund stated thus,
- “After three years of the “rollercoaster,” global debt is likely to rise again over the medium-term, under business-as-usual. The macroeconomic conditions that provided great relief to debt ratios in 2021-2022 will not last.”
- “The rebound of real GDP growth is fading. Inflation is projected to stabilize at a low level over the medium term (July 2023 WEO Update). If global debt resumes its rising trend going forward, the debt rollercoaster since the pandemic will look nothing more than a temporary deviation around its long-term rising trend.”
