Nigeria, Other Developing Countries Spend Record $1.4 Trillion on Foreign Debt Service In 2023

Developing countries across the world including Nigeria spent a record $1.4 trillion to service their foreign debt as their interest costs jumped to a 20-year high in 2023, the World Bank’s latest International Debt Report (IDR) shows.

The International Debt Report, formerly known as International Debt Statistics (IDS), is a longstanding annual publication of the World Bank featuring external debt statistics and analysis for the 121 low- and middle-income countries which report to the World Bank Debtor Reporting System (DRS).

According to the new report, interest payments surged by nearly a third to $406 billion in 2023, squeezing the budgets of many countries in critical areas such as health, education, and the environment.

The financial strain was fiercest for the poorest and most vulnerable countries—those eligible to borrow from the World Bank’s International Development Association (IDA), the data revealed.

Nigeria’s external debt service stood at $3.5 billion in the fiscal year which ended December 31, 2023, according to data from the Central Bank of Nigeria (CBN).

Nigeria is the third-largest debtor to the World Bank’s IDA as of June 30, 2024, following a significant increase in its borrowing from the institution, making her the third-largest debtor to the IDA following a significant increase in its borrowing from the institution.

Based on the latest World Bank IDR, Nigeria and other IDA-eligible countries paid a record $96.2 billion to service their debt in 2023.

Although repayments of principal decreased by nearly 8 per cent to $61.6 billion, the IDR noted that interest costs surged to an all-time high of $34.6 billion in 2023, four times the amount a decade ago.

On average, interest payments of IDA countries now amount to nearly 6 per cent of the export earnings of IDA-eligible countries—a level that hasn’t been seen since 1999.

For some countries, the payments run as high as 38 per cent of export earnings.

As credit conditions tightened, the World Bank and other multilateral institutions became the main lifeline for the poorest economies.

Since 2022, foreign private creditors have received nearly $13 billion more in debt-service payments from public sector borrowers in IDA-eligible economies than they disbursed in new financing.

Over the same period, the Bank and other multilateral institutions pumped in nearly $51 billion more in 2022 and 2023 than they collected in debt-service payments.

The World Bank accounted for a third of that sum—$28.1 billion.

The Bank Group’s Chief Economist and Senior Vice President, Indermit Gill said: “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.

“In highly indebted poor countries, multilateral development banks are now acting as a lender of last resort, a role they were not designed to serve. That reflects a dysfunctional financing system: except for funds from the World Bank and other multilateral institutions, money is flowing out of poor economies when it should be flowing in.”

The COVID-19 pandemic sharply enlarged the debt burdens of all developing countries—and the subsequent surge in global interest rates has made it harder for many to regain their footing. At the end of 2023, the total external debt owed by all low- and middle-income countries stood at a record $8.8 trillion, an 8 per cent increase over 2020.

The percentage increase was more than twice as large for IDA-eligible countries, whose total external debt climbed to $1.1 trillion, an increase of nearly 18 per cent.

In 2023, borrowing abroad became considerably more expensive for all developing economies. Interest rates on loans from official creditors doubled to more than 4 per cent.

Rates charged by private creditors climbed by more than a point to 6%—a 15-year high.

Global interest rates have since begun to subside, although they are expected to remain above the average that prevailed in the decade before COVID-19.

The latest International Debt Report highlights key insights from the World Bank’s International Debt Statistics database—the most comprehensive and transparent source of external debt data of developing countries. It reflects an upgraded effort to ensure accuracy in the debt data of IDA-eligible economies—by matching data these economies report to the World Bank’s Debtor Reporting System with data held by G7 and Paris Club creditors.

This loan-by-loan reconciliation exercise produced a 98 percent match rate in the data, lowering the margin of error from 10 points to just two.

“Comprehensive data on the liabilities of governments can facilitate new investment, reduce corruption, and prevent costly debt crises,” said the World Bank Chief Statistician and Director of its Development Data Group,

Haishan Fu: “The World Bank has played a leading role in improving debt transparency across the world, especially in IDA-eligible economies. In 2023, nearly 70 per cent of these economies published fully accessible public-debt data on a government website—a 20-point increase since 2020. That is a hopeful sign for the future.”

The International Debt Report is a longstanding annual publication of the World Bank featuring external debt statistics and analysis for the 122 countries that report to the World Bank Debtor Reporting System.

IDR 2023 is the 50th annual edition and includes analyses of external debt stocks and flows as of end-2022 for these countries; the macroeconomic and debt outlook for 2023 and beyond; and a focus on improved public debt transparency and the quality of debt reporting.

Others are a discussion of the need for innovative approaches to debt management; a commentary on how the international debt statistics database serves as an indispensable resource for researchers and policy makers; and a one-page snapshot of relevant debt indicators and summary of debt stocks and flows for six years (2010 and 2018–22) for each country, plus global income group and regional aggregates

Ndubuisi Francis

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