Developing countries faced unprecedented financial pressures in 2023, spending a record $1.4 trillion to service their foreign debt, according to the World Bank’s latest International Debt Report. The soaring interest payments, which climbed nearly a third to $406 billion, have left many nations grappling with budget constraints, forcing cuts in critical sectors like health, education, and environmental programs.
The burden was particularly severe for the world’s poorest and most vulnerable nations—those eligible to borrow from the World Bank’s International Development Association (IDA). These countries collectively paid a record $96.2 billion in debt servicing last year. While repayments of principal fell by nearly 8% to $61.6 billion, interest costs skyrocketed to an all-time high of $34.6 billion. This marks a fourfold increase over the past decade, with interest payments now consuming nearly 6% of the export earnings of IDA-eligible countries. For some nations, this figure climbs as high as 38%, creating a staggering imbalance in economic priorities.
As global credit conditions tightened, multilateral institutions like the World Bank became the primary financial lifeline for these struggling economies. Since 2022, foreign private creditors have received $13 billion more in debt-service payments from IDA-eligible countries than they provided in new financing. In contrast, multilateral institutions pumped in nearly $51 billion more in 2022 and 2023 than they collected in repayments. Of this, the World Bank alone contributed $28.1 billion, underscoring its critical role as a financial backstop.
Indermit Gill, the World Bank Group’s Chief Economist, highlighted the systemic challenges, stating, “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 played a central role in exacerbating debt burdens across all developing countries. By the end of 2023, the total external debt owed by low- and middle-income nations reached a record $8.8 trillion, marking an 8% increase since 2020. The impact was more pronounced for IDA-eligible economies, where total external debt surged by nearly 18% to $1.1 trillion.
Borrowing costs soared in 2023, with interest rates on loans from official creditors doubling to over 4%. Rates from private creditors also rose sharply, exceeding 6%—a 15-year high. While global interest rates have begun to decline, they remain elevated compared to pre-pandemic levels, keeping financial pressures high.
The World Bank’s upgraded efforts in debt transparency were a notable highlight in 2023. Its International Debt Report revealed a 98% accuracy rate in matching debt data from IDA-eligible countries with records from G7 and Paris Club creditors. Additionally, nearly 70% of IDA-eligible nations now publish fully accessible public-debt data online, a 20-point improvement since 2020.
Haishan Fu, Chief Statistician at the World Bank, emphasized the importance of these advancements: “Comprehensive data on the liabilities of governments can facilitate new investment, reduce corruption, and prevent costly debt crises.”
The report underscores the critical need for sustainable debt management and systemic reforms to ensure developing nations can focus on growth and development rather than unsustainable debt servicing.