The money that the poorest countries need to build schools, build bridges or modernize hospitals is increasingly more expensive and difficult to obtain. Over the last decade, low- and middle-income states have faced a large accumulation of liabilities and, consequently, have made a shift towards less conventional sources of financing that charge more interest, such as bilateral loans with China. Specifically, developing countries allocated a record figure of 443,000 million dollars (about 402,000 million euros) to the payment of their public external debt in 2022 – 5% more than in 2021 – in the context of the greatest increase in interest rates in four decades. This is how he breaks it down The World Bank in its annual report on external debtawhich warns that to meet their commitments, States had to make cuts in other critical areas such as public health, education and infrastructure.
In 2022, the combined balance of the external debt of the 75 countries that can access the credits granted by the International Development Association (IDA) —the World Bank institution that provides support to the poorest nations— reached a record figure of 1.1 trillion dollars, more than double what it was in 2012. Interest rates have also quadrupled in the last 10 years to reach an all-time high of 23.6 billion dollars in 2022. However, the worst, details the World Bank, could come between 2023 and 2024, since the cost of debt would rise by 39% for the 24 countries with the lowest incomes. “The social safety nets provided by governments or public investment to boost growth are at risk, given that tax collection is usually scarce,” warn the authors of the study. In the last three years alone, 18 cases of suspension of payments have been registered in 10 developing countries, which, according to the international organization, exceeds the figure of the previous two decades.
The World Bank specifies that new external loan commitments with public entities for middle-income countries fell 23% to reach $371 billion, the lowest level in a decade. For the first time since 2015, private creditors collected more in collections than they disbursed in loans, totaling $185 billion. Debt bond issuance also fell by at least half for all developing countries. The decline was 75% for 24 of the States with the least income.
Indebted countries have had to deal at the same time with several battle fronts: first, the risk that loans with variable interest rates will suddenly increase, since more than a third of the external debt of these nations belongs to this type . Second, they must face the payment of the interest accumulated by sticking to programs that allowed them to suspend payments during the pandemic. And finally, the constant threat of the dollar appreciating or exports falling.
The rises pause
In mid-March 2022, the US Federal Reserve began a rapid race to calm the general price increases caused by the pandemic and the war in Ukraine. It did so by making access to credit more expensive, taking rates to the range of 5.25-5.50%, maximums in the last 22 years. Other central banks, including that of the euro zone, imitated the movements. More than a year and a half later, the task seems to have been accomplished: inflation is beginning to moderate. However, along the way, developing countries have found that accessing credit from traditional multilateral entities has become more expensive than ever before.
“The situation has put many countries on the path to crisis,” underlines Indermit Gill, chief economist and senior vice president of the World Bank, who emphasizes that debt has become an almost paralyzing burden for these economies. Currently, 60% of low-income countries are at high risk of debt distress or are already in this situation.
The path back to rate stability, however, appears to have been smoothed. The US Federal Reserve committee updated its forecasts for 2024 a few weeks ago and everything indicates that the entity will cut rates by 0.75 points until the end of the year, which would, in part, deflate the price of future debt. For the European Central Bank the forecast is similar. The first drops in the Old Continent could arrive in March or June. However, until these decisions are implemented, countries will have to face an unfavorable credit scenario.
World Bank sources point out that transparency is crucial to improve debt management and its sustainability. “The first step to avoiding a crisis is to have a clear idea of the challenge,” says Haishan Fu, chief statistician at the World Bank. “Accurate data are key elements to guarantee sustainable public debt,” the report points out.
Hydroelectric Power Plant in Laúca (Angola) 2022
The big Chinese bank
Between 2012 and 2022, the sum of the loans China deployed was $254 billion. The Asian giant especially aimed to finance oil-producing states, its regional neighbors and those along the Belt and Road corridor, as well as mineral-rich nations and those in sub-Saharan Africa.
The report details that commitments increased rapidly in the first half of the decade to reach $52 billion in 2016—of this amount, 57% went to sub-Saharan countries. However, transactions fell to a record low of 5.4 billion in 2022.
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2023-12-28 05:02:51
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