Key Takeaways

Debt servicing costs of low- and middle-income countries (LMICs), excluding China, reached an all-time high in 2023, double the level of a decade ago. Higher external debt levels—which also increased to an all-time high in 2023, to US$8.8 trillion (including China)—coupled with elevated interest rates posed new and challenging debt burdens for these countries. Overall debt levels continued to rise as a result of accumulated borrowing during the pandemic and were exacerbated by financial pressures in its aftermath: notably, a sharp rise in global interest rates, depreciating local currencies, and uncertainty surrounding global economic growth.

In addition, the data indicate that the composition of LMICs’ external borrowing has changed markedly since the onset of the pandemic, with multilateral creditors significantly increasing their share of lending to LMICs amid slower lending growth from private creditors.

Key takeaways from the 2023 data include the following:

• The total debt servicing costs (principal plus interest payments) of all LMICs reached an all-time high of US$1.4 trillion in 2023. For LMICs, excluding China, debt servicing costs climbed to a record of US$971.1 billion in 2023, an increase of 19.7 percent over the previous year and more than double the amounts seen a decade ago. These historically challenging debt service costs were due to record debt levels, interest rates at a two-decade high, and depreciation of local currencies against a strong US dollar.

• Since the onset of the pandemic, multilateral lenders have become the central financial lifeline for LMICs amid a slowing of private lending. The composition of LMICs’ external debt portfolios has changed significantly since 2019 as multilateral creditors—including the International Monetary Fund, the World Bank, and regional development banks—stepped up and assumed the role of providers of emergency relief and balance of payments support in times of crisis. Borrowing from private creditors fell sharply because of adverse market conditions, investor retreat from frontier markets, and—in countries eligible for International Development Association (IDA) assistance—a concentration on borrowing from official creditors on concessional terms to support debt sustainability.

• Official multilateral creditors have been positive contributors to net transfers to LMICs throughout the past decade, offering concessional financing at low interest rates, long maturities, and support for countries through times of shocks that have negatively affected their economies since 2019. By contrast, and excluding China, net transfers from private creditors to public sector entities in LMICs have been negative and have resulted instead in a withdrawal by this creditor base for the past three years. Net transfers on external debt owed to bondholders turned negative in 2020 and, despite a significant improvement, remained negative at US$13.8 billion in 2023.

• Debt stock owed to multilateral creditors rose 6.8 percent to US$1.3 trillion in 2023, whereas debt stock owed to private creditors increased just 0.8 percent. This contrast mirrors the increases in multilateral lending during other periods of economic crisis, including during the 2008–09 financial crisis, when debt stock owed to multilateral institutions grew at five times the pace of lending by private creditors. Multilateral creditors have played an even more pronounced role in IDA-eligible countries: their debt stock to these countries increased 10.1 percent in 2023 to US$400.8 billion. The World Bank accounted for US$170.8 billion, or 42.6 percent, of that debt stock.

• Total external debt stock of LMICs hit at an all-time high of US$8.8 trillion in 2023, up 2.4 percent from the previous year. This rise was driven by a 3.4 percent increase in short-term debt stock (with maturity of less than one year), to US$2.3 trillion, and a 2.0 percent rise in long-term debt stock, to US$6.5 trillion. Long-term public and publicly guaranteed external debt rose 3.6 percent to US$3.8 trillion, whereas long-term private nonguaranteed debt remained unchanged. China’s external debt stock fell for a second consecutive year, decreasing 1.1 percent to US$2.4 trillion. China accounts for more than 27 percent of the total debt stock of LMICs.

• For all LMICs (excluding China), external debt stock rose 3.8 percent to US$6.4 trillion in 2023. Yet debt burdens, which measure debt relative to gross national income (GNI), were broadly unchanged, at 34.4 percent, because of a 6.3 percent increase in the dollar value of LMICs’ combined GNI in 2023 and a smaller, 3.8 percent increase in debt stocks. Debt burdens in the poorest countries, those eligible for IDA resources, continued to rise in 2023, however, increasing by 1.9 percentage points to an average of 40.6 percent of GNI, as the rise in their debt stock outpaced their GNI growth. The pandemic and its aftermath have hit these countries hardest, and the increase in their debt burdens has diverted resources away from other critical areas, including social services and infrastructure development; negatively affected economic growth; and exacerbated debt vulnerabilities in many of them.

• Combined World Bank and International Monetary Fund long-term debt stock to LMICs has risen 63.1 percent since before the pandemic, more than nine times the growth of private lending to LMICs over the period. Debt stock owed by LMICs (excluding China) to the World Bank’s International Bank for Reconstruction and Development and IDA was US$421.8 billion in 2023, equivalent to 34.0 percent of all multilateral creditors.

• Because of the monetary tightening of recent years, interest payments on public and private debt increased across all regions in 2023. New commitments to LMICs (excluding China) also became more expensive: interest rates on new loans from official creditors increased 2.1 percentage points to 4.09 percent in 2023, and rates on loans from private creditors increased 1.37 percentage points to 6.0 percent, the highest level since 2008. Both interest payments and rates look likely to mitigate going forward as many central banks have begun to ease policy.

In addition to the release of the 2023 external debt data from the International Debt Statistics database, this edition of the International Debt Report

• Provides analysis of the near-term macroeconomic outlook and risks LMICs face amid changing global financial conditions and what they portend for these countries’ debt burdens and vulnerabilities going forward;

• Examines the ability of the smallest and poorest countries, many of which have underdeveloped domestic financial systems and lack access to global capital markets, to carry debt and sustain larger-than-ever debt service burdens; and

• Identifies steps and efforts that governments of debtor and creditor countries, together with the international community, have undertaken to move the debt transparency agenda forward, with support from research and input from academia.

Abbreviations

Acronyms Abbreviations

AFESD Arab Fund for Economic and Social Development

BCIE Central American Bank for Economic Integration

BCSL bilateral currency swap line

BDEAC Development Bank of the Central African States

ComSec Commonwealth Secretariat

DRS Debtor Reporting System

EBRD European Bank for Reconstruction and Development

EIB European Investment Bank

FDI foreign direct investment

FY fiscal year

G-7 Group of Seven

G-20 Group of Twenty

GDP gross domestic product

GNI gross national income

HIPC Heavily Indebted Poor Countries

IBRD International Bank for Reconstruction and Development

IDA International Development Association

IDB Inter-American Development Bank

IDS International Debt Statistics

IFAD International Fund for Agricultural Development

IMF International Monetary Fund

LICs low-income countries

LMICs low- and middle-income countries

MICs middle-income countries

OPEC Organization of the Petroleum Exporting Countries

PPA performance and policy action

PPG public and publicly guaranteed

PNG private nonguaranteed

RBI Reserve Bank of India

Acronyms Abbreviations

SDRs special drawing rights

SOE state-owned enterprise

TDB Eastern and Southern African Trade and Development Bank

UNCTAD UN Trade and Development

All dollar amounts are in US dollars unless otherwise indicated.