The World Bank has issued a stark warning that the poorest countries in the world are facing a debt crisis due to the surge in global interest rates and a stronger US dollar.

According to its International Debt Report for 2023, developing countries spent a record $443.5 billion to service their external public and publicly guaranteed debt in 2022, an increase of five percent over the previous year.

The 75 countries eligible to borrow from the World Bank’s International Development Association (IDA), which supports the poorest countries, paid a record $88.9 billion in debt-servicing costs in 2022.

Over the past decade, interest payments by these countries have quadrupled, to an all-time high of $23.6 billion in 2022. The report said that the rise in borrowing costs had diverted scarce resources away from critical needs such as education, health, and the environment.

Debt Distress and Defaults

The World Bank said that rising interest rates had made all developing nations more vulnerable to debt distress and defaults.

Punch reports that there have been more sovereign defaults in the last three years than in the entire preceding two decades, affecting ten developing nations. Approximately 60 percent of low-income nations are currently in or at high risk of entering debt distress.

The report also noted the effect of a stronger US dollar on debt service payments for developing countries, making it even more expensive for them to make payments.

Nigeria Tops New Financing Recipients

The report also disclosed that Nigeria received $2.9 billion and topped the recipients of new financing from the World Bank in 2022. Nigeria was followed by Tanzania, which got $2.7 billion in the same year.

The report said that Nigeria and Tanzania were the top recipients of new financing from the World Bank in 2022, at $2.9 billion and $2.7 billion, respectively.

The external debt stock report of the Debt Management Office showed that Nigeria owed the World Bank $14.51 billion as of June 30, 2023.

Call for Action

The World Bank urged quick and coordinated action by debtor governments, private and official creditors, and multilateral financial institutions to address the debt crisis. It called for more transparency, better debt sustainability tools, and swifter restructuring arrangements.

“The alternative is another lost decade,” said Indermit Gill, the World Bank Group’s Chief Economist and Senior Vice President.

He added, “Record debt levels and high interest rates have set many countries on a path to crisis. 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 World Bank said that it hoped that its efforts, along with those of other partners, would help the developing world recover from the crisis and achieve sustainable and inclusive growth.