High interest rates are reportedly siphoning money away from spending on health, education, and other critical needs

Developing nations spent a record $443.5 billion to service their external public and publicly guaranteed debt in 2022 amid the biggest surge in global interest rates in four decades, according to the latest World Bank report.

The research found that this increase shifted scarce resources away from critical needs such as health, education, and the environment.

Debt-service payments (both principal and interest) jumped by 5% over the previous year for all developing countries, the report showed. It further indicated that the 75 countries eligible to borrow from the World Bank’s International Development Association, which supports the poorest countries, paid a record $89 billion in debt-servicing costs in 2022.

Over the past decade, interest payments by these countries quadrupled to an all-time high of $23.6 billion as of last year, according to the report. Overall, debt-servicing costs for the 24 poorest countries are expected to balloon in 2023 and 2024 – by as much as 39%, the financial institution said.

“Record debt levels and high interest rates have set many countries on a path to crisis,” said Indermit Gill, the World Bank Group’s chief economist and senior vice president. “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.” 

According to Gill, the lack of coordinated action by debtor governments, private and official creditors, as well as multilateral financial institutions, could lead to “another lost decade.’’ 

READ MORE: World facing ‘debt tsunami’ – Bloomberg

The World Bank has said that surging interest rates have intensified debt vulnerabilities in all developing countries. In the past three years alone, there have been 18 sovereign defaults in ten developing countries, which is greater than the number recorded in the previous two decades. Currently, about 60% of low-income countries are at high risk of debt distress or already in it, the report warned.

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