World Bank – International Debt Report, 2023

The World Bank's International Debt Report for 2023 highlights the growing concern over the increase in external debt stock in low- and middle-income countries (LMICs) in relation to their economic growth. Particularly worrisome is the situation in the poorest countries eligible for International Development Association (IDA) resources, where external debt stocks have risen at an even faster pace than in other LMICs. This decade-long asymmetry between debt accumulation and economic growth has led to or worsened debt vulnerabilities in many LMICs, requiring urgent actions to address the issue. In 2022, the external debt stock of LMICs decreased by 3.4 percent for the first time since 2015, reaching US$9.0 trillion compared to US$9.3 trillion in 2021. This decrease was mainly due to negative debt flows and the appreciation of the US dollar against other major currencies in which LMICs denominate their external debt. Long-term and short-term debt stocks experienced similar declines, with the decrease in long-term external debt primarily attributed to a 5.0 percent decrease in obligations to private creditors. In contrast, the combined external debt stock of IDA-eligible countries reached an all-time high of US$1.1 trillion in 2022, increasing by 2.7 percent compared to 2012. Moreover, net debt flows to LMICs turned negative in 2022 for the first time since 2015, indicating outflows of US$185 billion instead of the previous year's inflows of US$556 billion. Both short- and long-term debt flows were negative, with long-term debt flows reaching a record low and becoming negative for the first time since the beginning of the millennium. The fall in net long-term debt inflows was primarily caused by a sharp retrenchment in bond issuance by sovereigns and other borrowers, driven by tighter monetary policies in advanced economies and higher borrowing costs. This resulted in a net outflow of US$127.1 billion from LMICs to bondholders in 2022. The report also highlights that the ratio of total external debt stock to gross national income (GNI) for LMICs declined by 2 percentage points to 24 percent in 2022. This decline was a result of an increase in the US dollar value of LMICs' combined GNI, economic growth rebound, and a fall in the external debt stock by 3.4 percent. Furthermore, the report notes that low-income countries accumulated external debt at a faster rate than middle-income countries over the past decade. The debt stock of low-income countries increased by 109 percent, while GNI rose 33 percent. In contrast, the external debt stock of middle-income countries increased by 58 percent, slightly higher than the 51 percent increase in GNI. In IDA-eligible countries, external debt stock accumulation significantly outpaced GNI growth, increasing by 134 percent compared to a 53 percent rise in GNI. The report also reveals a significant decline in new external loan commitments in 2022, with new commitments to public and publicly guaranteed sector entities falling by 23 percent to their lowest level since 2011. This decline was driven by the sharp decrease in new commitments from private creditors, particularly bondholders. However, new commitments by multilateral creditors increased by 1.5 percent, partly offsetting the decline in lending from private creditors. Debt service payments by LMICs reached the highest level in history, totaling US$443.5 billion in 2022, and are projected to continue growing. The forecast for debt service on external debt alone is a 10 percent increase in 2023-2024 compared to the previous two years. This increase poses a burden for many LMICs, potentially impeding spending on other priorities. In conclusion, the 2023 International Debt Report emphasizes the rising concerns regarding the increase in external debt stock in LMICs, particularly in the poorest countries. Urgent actions are needed to address the debt vulnerabilities created or worsened by the asymmetry between debt accumulation and economic growth. The report highlights the decline in external debt stock in 2022, negative net debt flows, and the challenges of servicing external debt, which could crowd out spending on other important areas.