A new report by the World Bank reveals that Nigeria and 121 other developing countries spent around $443.5 billion in servicing public external debt in 2022.
These countries are spread across Latin America, North Africa, Sub-Saharan Africa, Europe, East and Central Asia.
The report titled “International Debt Report 2023” states that the poorest countries of the world face a debt crisis as borrowing costs surge due to interest rate hikes in the United States and Europe.
Speaking on the report, the World Bank’s Chief Economist and Vice President, Indermit Gill noted that “Record debt levels and high interest rates have set many countries on a path to crisis,”
Ghana in 2022 defaulted on its debt obligation and just this week, it was reported Ethiopia will default on its debt obligation to creditors.
The report warned that around 60% of low-income countries are at risk of debt distress or probably debt distressed already.
It further noted that the number of sovereign debt defaults in developing countries in the past three years was greater than defaults witnessed in the last two decades.
According to the report, payment of debt service increased by 5% in the previous year and the 75 poorest countries of the world paid $88.9 billion for debt service in 2022.
The report noted that the expenditure debt service in these countries was more than the funds allocated to critical development sectors like health, education and environment.
For example, Nigeria in 2022 spent around N5.65 trillion in debt servicing while its total education and health expenditures stood at N875.93 billion and N821.5 billion respectively.
Rising debt service outlook
The 2024 debt outlook for the poorest 24 countries in the world is even worse as debt service among these countries is expected to rise by 39% in 2023 and 2024.
- The World Bank’s V.P. said of the increasing debt service, “Every quarter that interest rates stay high results in more developing countries becoming distressed—and facing the difficult choice of servicing their public debts or investing in public health, education, and infrastructure.”
The cause of this gloomy fiscal outlook for these developing countries could be attributed to a strong U.S. dollar and a drop in export earnings.
The naira for example has lost over 50% in its value since June making it more expensive to service external USD-denominated loans.
