The Debt Burden of Developing-Countries Has Never Been Greater

According to a new report commissioned by the Norwegian Church Aid and published July 31 by Debt Relief International, the debt service paid by developing nations is at an all-time high, with dramatic effects on their development perspectives. The outlay for the debt far exceed social costs. The summary of the report makes that clear:

“In 2024, debt service is absorbing 41.5% of budget revenues, 41.6% of spending, and 8.4% of GDP on average across 144 developing countries… Most important, service exceeds all social spending, and is 2.7 times education spending, 4.2 times health, 11 times social protection, and 54 times climate adaptation.”

This is an average for all developing countries, further broken out in the report into four categories: heavily indebted poor countries (HIPC), low-income countries (LIC), low-middle income countries (LMIC), and upper-middle income countries (UMIC).

According to the study conducted by Debt Relief International, the causes of the pressure of debt have been worsening for a decade-and-a- half.

* First, was the drying up of sovereign credit (including that from multinational development banks), starting in the aftermath of the 2008 crash. This shifted so-called high-income-country lending over to “public-private partnerships” and private bondholders, with interest rates very high, above 10% and as high as 15%.

* Second came the rapid inflation of world prices of commodities, dated in this report from 2018. EIR has previously shown prices exploding in 2019 after a decade of “quantitative easing” or money-printing by the trans-Atlantic and Japanese central banks.

* Third was the Federal Reserve-led increase in interest rates on sovereign lending, including rates on non-concessionary lending by the World Bank etc.. This not only made debt more difficult to service, but also hit developing country currencies with repeated devaluations, increasing the amount of debt as calculated in the borrowers’ currency.

* Fourth, developing countries over the past two decades have turned to domestic credit markets to borrow, but have borrowed there at very high rates because of issuing large-denomination bonds to a very few favored lenders.

Ironically, it is the lack of development credit, issued at low interest rates, which has placed an even more crushing debt service burden on developing countries.

As to who the creditors of developing countries now are: It appears that the report assigns 46% of the debt to multilateral creditors such as the World Bank; 20% to banks and other commercial creditors; 20% to China as the largest bilateral national lender; and the remainder to other bilateral lenders in the G20 and to domestic banks and lenders in the borrowing countries.

The publication of this report is very useful at this point, when a growing number of developing countries in and around the BRICS are looking to set up an alternative to the bankrupt City of London and Wall Street financial system, which would support their development.