Addressing the Challenges of Debt Financing for Sustainable Development
The World Bank Urges Action on Rising Debt Levels in Developing Countries
As the world strives to achieve the Sustainable Development Goals, the issue of debt sustainability in developing countries has come to the forefront. With limited ability to mobilize domestic revenues or attract private investment, many governments in these countries are facing mounting debt levels that threaten their economic stability and growth.
According to recent data, external debt in low-income countries has been rising at a faster pace than economic growth over the past decade. This trend has been further exacerbated by multiple shocks since 2020, leaving about 60 percent of low-income countries at high risk of debt distress or already in debt distress.
The challenges ahead are significant, with global interest rate hikes expected in 2022 and 2023, leading to higher debt servicing costs for these countries. In 2023, low-income countries are estimated to have spent an average of 7.5 percent of their budgets on debt service, surpassing spending on health and education combined.
To address these challenges, the World Bank is calling for a renewed focus on debt management and transparency. It is crucial that new debt is used to promote growth and stability, rather than hindering it. Policy makers in borrowing countries need access to reliable debt information to make informed decisions, while creditors, donors, analysts, and ratings agencies require full transparency to assess risks and opportunities.
The World Bank is actively working to support developing countries in managing their debt sustainability and improving transparency and management capacity. Through high-concessional financing and efforts to enhance the global sovereign debt architecture, the World Bank is committed to helping countries navigate the challenges posed by rising debt levels.
As the world continues to grapple with the economic fallout of the past few years, addressing debt sustainability in developing countries will be crucial to ensuring a more stable and prosperous future for all.