Nigeria received the highest amount of financing with $2.9 billion from the World Bank in 2022, the international debt report for 2023 has revealed.
Africa’s biggest economy was followed by Tanzania, which borrowed $2.7 billion in fresh debts during the period.
According to the report, published by the World Bank, new external loan commitments to public and publicly guaranteed (PPG) sector entities fell in 2022 for a second consecutive year, decreasing 23% to $372 billion and reaching their lowest level since 2011 due to a 33% decline in new commitments a private creditors, which contracted to $218 billion, also the lowest level since 2011.
“An important exception was new commitments by multilateral creditors, which rose 1.5% in 2022 to US$115.6 billion. Multilateral creditors continued to step up and partly offset the decline in lending from private creditors.
“New commitments from the World Bank (International Bank for Reconstruction and Development and IDA) rose by 1.3% in 2022, to $53.5 billion, equivalent to 46% of new commitments by all multilateral institutions and an all-time high. For many countries, including most of the World’s poorest, multilateral lenders were the primary source of new external financing in 2022.
“Nigeria and Tanzania were the top recipients of new financing from the World Bank in 2022, at $2.9 billion and $2.7 billion, respectively,” it stated.
The report showed that over the past decade, the rise in the external debt stock of low- and middle-income countries (LMICs) has outpaced economic growth, raising concerns about these countries’ ability to service their debt.
It states that the situation is especially worrisome in the poorest countries that are eligible for International Development Association (IDA) resources, where external debt stocks have risen at an even faster pace than other LMICs.
“This decade-long asymmetry between economic growth and debt accumulation has created or exacerbated debt vulnerabilities in many LMICs, and actions to address these vulnerabilities have become increasingly more urgent.
“Currently, about 60% of IDA-eligible countries are assessed at high risk of debt distress or are already in debt distress.
“Total net debt flows (loan disbursements minus principal repayments) to LMICs turned negative in 2022 for the first time since 2015 to outflows of US$185 billion, a stark contrast to inflows of US$556 billion recorded in 2021. Both short- and long-term debt flows were negative in 2022—$90.6 billion and US$94.5 billion, respectively—with long-term debt flows at a record low and negative for the first time since the beginning of the millennium.
The fall in net long-term debt inflows was due entirely to the US$189 billion outflow from private creditors, reflecting a sharp retrenchment in bond issuance by sovereigns and other public and private sector borrowers,” it stated.
Also, it indicated that a tighter monetary policy in advanced economies to curb inflation raised borrowing costs, pricing some LMICs out of the markets, and offered investors attractive returns in the US and European bond markets. As a result, there was a net outflow of $127.1 billion from LMICs to bondholders in 2022, compared to an average annual inflow of $202 billion in 2019–21.
According to the World Bank, the ratio of total external debt stock to gross national income for LMICs declined by 2 percentage points in 2022, to 24%. This decline resulted from an increase in the US dollar value of LMICs’ combined GNI, which rose 5.8 percent in 2022, to $37.4 trillion, a rebound in economic growth and a 3.4 per cent fall in external debt stock.
Public and publicly guaranteed (PPG) debt service payments by LMICs (including the International Monetary Fund) totaled US$443.5 billion in 2022, and are forecast to continue to grow.
Also, debt service on PPG external debt is expected to rise 10 percent in 2023/ 2024. “This increase takes place during a time of rising interest rates and largely unfavourable exchange rate movements, which exacerbated the fiscal burden of external debt service payments. As a result, servicing external debt could become increasingly burdensome for many LMICs and could crowd out spending on other priorities.
“LMICs have become more vulnerable to currency risk as the share of external PPG debt in foreign currencies has increased. General government debt in foreign currencies in LMICs accounted for 25 per cent in 2022.
“This increase in government debt denominated in foreign currencies makes these countries more vulnerable to rising debt service costs through exchange rate movements. More than 80 percent of external PPG debt in LMICs was in US dollars in 2022.
“Heavy reliance on debt denominated in a single currency could also increase vulnerability to sudden movements in exchange rates. With ongoing monetary policy tightening in the United States, LMICs may face continued depreciation pressures,” it stated.
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