"Developing countries are not out of danger" - WB warns countries, as debt costs reach record highs
The World Bank said the gap between developing countries' debt service costs and new financing reached its highest level in more than 50 years, $741 billion between 2022 and 2024. The bank urged these countries to take advantage of the more relaxed terms of global financing to fix their finances.
In its annual International Debt Report, the Washington-based institution noted that interest payments also reached a new record of $415.4 billion in 2024, despite some relief from falling global interest rates.
“Global financial conditions may be improving, but developing countries should not kid themselves: they are not out of danger,” said a senior World Bank economist, adding that debt accumulation is continuing “sometimes in new and harmful ways.”
Bond markets reopened for most countries as the global cycle of rising interest rates ended, paving the way for billions of dollars in new issuance. But that came at a cost, as interest rates on bond debt were nearing 10%, about double what they were before 2020, and opportunities for low-cost financing were shrinking.
Developing countries are also turning more to domestic debt markets to finance themselves. In 50 countries, domestic debt grew faster than external debt last year. The bank said this indicated the development of local credit markets, but warned that it could tighten local bank lending to the private sector and raise refinancing costs due to shorter maturities.
Developing countries restructured almost $90 billion in external debt in 2024, the highest level in 14 years. Meanwhile, net bilateral lending flows shrank by 76% to $4.5 trillion, a level not seen since the 2008 financial crisis, forcing countries to seek more expensive private financing.
While multilateral lending increased and the World Bank itself lent a record $36 billion, 54% of low-income countries are now in difficulty or face high debt risks.
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