Durrant Pate/Contributor

The World Bank has found that developing countries spent a record US$1.4 trillion servicing their foreign debts in 2023, as interest costs climbed to a 20-year high. 

This surge in costs has squeezed budgets for essential services, including healthcare, education, and environmental protection. In its bank’s latest International Debt Report, the World Bank found that the total foreign debt interest payments from developing countries soared to US$406 billion with the poorest countries facing the most severe strains. 

These countries, eligible to borrow from the bank’s International Development Association (IDA) paid a record US$96.2 billion in 2023. Despite a nearly 8% drop in principal repayments to $61.6 billion, their interest costs surged to an all-time high of US$34.6 billion in 2023—four times the amount from a decade ago.

IDA-eligible countries spending 

The World Bank notes that on average, IDA-eligible countries now spend 6% of their export earnings on foreign debt service, a level not seen since 1999. For some countries, these payments can be as high as 38% of export earnings.

Aside from this data, a banking trade group, the Institute of International Finance highlighted that the world’s total debt stock surged by US$12 trillion in the first three quarters of 2024, reaching a record of nearly US$323 trillion. The Institute warned that sovereign debt could rise by a third to $130 trillion by 2028 if growing government budget deficits are not controlled, increasing repayment risks. 

At the end of 2023, the external debt owed by all low- and middle-income countries stood at a record US$8.8 trillion, up 8% from 2020. The financial strain on the poorest countries has forced them to turn to multilateral institutions, including the World Bank and the International Monetary Fund. 

These institutions have provided US$51 billion more in 2022 and 2023 than they collected in debt service payments, according to the World Bank report. World Bank Chief Economist Indermit Gill commented, “Multilateral institutions have become the last lifeline for poor economies struggling to balance debt payments with spending on health, education, and other key development priorities.” 

He emphasized that these institutions were not designed to be lenders of last resort.