The World Bank’s DebT Report 2024 – An Analysis
The World Banks Debt Report 2024 -An Analysis does analysis on IDR 2024. On 3rd December 2024, the World bank’s Debt Report 2024 – i.e. International Debt Report (IDR), 2024 was released, formerly known as its premier annual publication on debt. The report has been effective in shaping development finance policies by providing timely and comprehensive external debt data and analysis to the global community for over five decades.
Using data from the World Bank’s Debtor Reporting System, this publication has adapted to changing borrowing patterns and new lending instruments, assessed the effectiveness of debt relief initiatives, and promoted best practices in debt recording and reporting.
The World Bank’s Debt Report – IDR, 2024 – A Brief Analysis
Annually, the report offers an up-to-date analysis of trends in the external debt stocks and flows in low- and middle-income countries (LMICs), highlighting issues and challenges for development finance. The International Debt Statistics (IDS) database complements this by providing comprehensive information on the external debt of public and private borrowers in LMICs by borrowers and creditors, including terms of external loans are contracted, current and future debt service obligations, and key debt indicators.
The IDR 2024 consists of: i) key takeaways; ii) analysis of external debt from 2013–2023; iii) the macroeconomic and debt outlook for 2024 and beyond; iv) the debt transparency agenda; and v) one-page summaries per country, plus global, regional, and income-group aggregates showing debt stocks and flows, relevant debt indicators, and metadata for five (5) years (i.e. from 2019 to 2023).
Before Dwelving into the Report there are a few Debt Terminologies that need to be understood. Here are they
- Debt Service – The sum of principal and interest payments.
- Total External Debt – The sum of public and publicly guaranteed debt, private nonguaranteed debt, and short-term debt.
Public And Publicly Guaranteed Debt – Comprises of long-term external obligations (maturities of over one year) of all public debtors, including debt held by the central government and by state-owned enterprises.
Private Nonguaranteed Debt – long-term external obligations of private debtors that are not guaranteed by a public entity), and
Short-Term Debt – Debt with an original maturity of one (1) year or less.
Rising Debt Servicing costs of low- and middle-income countries (LMICs)
In 2023, the debt servicing costs of Low- And Middle-Income Countries (LMICs), excluding China, hit a record high and doubled from 10 years ago. High interest rates combined with higher levels of external debt—which also reached an all-time high in 2023, reaching $8.8 trillion (including China)—presented these countries with a new and challenging debt burden. This is 2.4% from the previous year.
Short-term debt (those with maturities under a year) increased by 3.4 % to $2.3 trillion, while long-term debt increased by 2.0% to $6.5 trillion.
In 2023, all LMICs’ total debt servicing expenses (principal plus interest payments) hit a record high of $1.4 trillion. In 2023, debt servicing expenses for LMICs (except China) reached a record of $971.1 billion, up 19.7% from the year before and more than doubling from the levels observed ten years prior.
As private lending has slowed since the start of the Pandemic, the multilateral lenders have taken over as LMICs’ primary source of funding. Since 2019, the external debt portfolios of LMICs have undergone major changes in composition as multilateral creditors such as the World Bank, the International Monetary Fund, and regional development banks have stepped up to assist balance of payments and emergency relief during crises.
A steep increase in global interest rates, declining local currencies, and uncertainty surrounding global economic growth were among the financial pressures that worsened the pandemic’s effects, which led to an overall increase in debt levels.
Furthermore, according to the data, the structure of external borrowing by LMICs has changed considerably since the beginning of the pandemic, with multilateral creditors lending to LMICs at a significantly higher rate than private creditors, while private creditors’ loan growth has been slower.
After going negative in 2020, net transfers on external debt owed to bondholders remained negative at $13.8 billion in 2023, though there was a considerable improvement.
In 2023, the Debt stock owed to private creditors increased to 0.8% only, whereas the Debt stock owed to multilateral creditors surged by 6.8% to $ 1.3 trillion.
The debt of Multilateral Creditors has increased by 10.1% to $400.8 billion in 2023. Of the total debt stock, the World Bank amounts to $170.8 billion, and 42.6% in terms of percentage.
While long-term private nonguaranteed debt remained the same, long-term public and publicly guaranteed external debt increased by 3.6% to $3.8 trillion. For the second year in a row, China’s external debt stock dropped by 1.1% to $2.4 trillion. Over 27% of the overall debt stock of LMICs is attributed to China.
The external debt stock for all LMICs (except China) increased by 3.8% to $6.4 trillion in 2023. However, due to a 3.4% increase in debt stocks and a 6.3% increase in the dollar amount of LMICs’ total GNI in 2023, debt burdens—which calculate debt to Griss National Income (GNI)—remained largely steady at 34.4%. Debt burdens for the Poor country in terms of GNI increased to 40.6% because their debt stock increased faster than their GNI.
Private funding to LMICs has increased by more than nine times since the epidemic, with the combined World Bank and International Monetary Fund long-term loan stock to LMICs increasing by 63.1%.
The World Bank’s International Bank for Reconstruction and Development (IBRD) and IDA received $421.8 billion in debt stock from LMICs (apart from China) in 2023, which accounted for 34.0% of all multilateral borrowers.
Due to monetary policy tightening in recent years across all regions, the interest payments on public and private debt increased in 2023. Interest rates on new loans from official creditors rose 2.1% to 4.09% in 2023, while rates on loans from private creditors increased 1.37% to 6.0%, the highest level since 2008. This means that new commitments to LMICs (apart from China) also became more costly. Since many central banks have started to loosen policy, interest payments and rates are expected to decrease in the future.
India and External Debt Stock
India’s overall external debt increased by $31 billion to $646.79 billion in 2023 in comparison with $615.15 billion in 2022, according to the data.
Source: IDR 2024, World Bank
In 2023, interest payments on this debt totalled $22.54 billion, up from $15.08 billion in 2022.
Source: IDR 2024, World Bank
Short-term debt stocks marginally decreased from $ 127.87 billion in 2022 to $126.32 billion in 2023, while long-term debt stocks increased by 7% to $498 billion in 2023 from $ 466 billion in 2022.
In 2023, debt servicing amounted to 10.1% of exports compared to 8.30% in 2022, and the external debt stock increased to 80% of exports from 77% in 2022.
My Perspective/ Conclusion
The IDR 2024, provides a detailed analysis of the external debt trends and challenges faced by LMICs. The impact of increasing debt levels and service costs, due to increases in interest rates, are alarming across all regions.
As far as India is concerned, the debt has increased by $ 31 billion in comparison to last year. This may be due to an increase in debt stock to exports (which has increased by more than 2% (from 77.4% in 2022 to 79.7%) and debt servicing to exports which has increased by 2% approximately (to 10.1% in 2023).
The problem arises when debt rises more rapidly than the country’s real debt-servicing capacity. This happens when increased borrowing fuels demand without a corresponding increase in production. Therefore, it is pertinent to decrease the interest payments for any economy so that they can able to manage their debt levels easily and have a productive investment, which may lead to sustainable economic growth.
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