World Bank: Low-income countries’ debt rose by 12% to record $860bn in 2020

The World Bank says the external debt stock of the world’s low-income countries rose 12 percent to a record $860 billion in 2020 from $770 billion in 2019.

The bank disclosed this in its new “International Debt Statistics 2022 report” published on Monday. 

According to the bank, governments around the world responded to the COVID-19 pandemic with massive fiscal, monetary, and financial stimulus packages. 

While these measures were aimed at addressing the health emergency, cushioning the impact of the pandemic on the poor and vulnerable and putting countries on a path to recovery, the resulting debt burden of the world’s low-income countries rose 12 percent to a record $860 billion in 2020.

“World gross domestic product (GDP) fell by an estimated 4.3 percent in 2020 — the sharpest contraction of output since the Great Depression. Developed economies were most severely impacted by the pandemic, and output is estimated to have shrunk by 5.6 percent in 2020,” the report said.

“Low-and middle-income countries experienced a relatively less severe contraction, with output estimated to have contracted by 2.5 percent in 2020.

“Even prior to the pandemic, many low- and middle-income countries were in a vulnerable position, with slowing economic growth and public and external debt at elevated levels. External debt stocks of low-and middle-income countries combined rose 5.3 percent in 2020 to $8.7 trillion.”

The bank noted that, in Sub-Saharan Africa, both Ghana and Nigeria recorded a 17 percent increase in external debt stocks driven by purchases from the IMF of $1 billion and $3.4 billion, respectively, plus in Ghana, the $3 billion pre-pandemic Eurobond issue, and for Nigeria, a 16 percent rise in the nonguaranteed debt of the private sector.

David Malpass, president of the World Bank Group, said an encompassing approach to managing debt is needed to help low- and middle-income countries assess and curtail risks and achieve sustainable debt levels. 

“We need a comprehensive approach to the debt problem, including debt reduction, swifter restructuring and improved transparency. Sustainable debt levels are vital for economic recovery and poverty reduction,” Malpass said. 

“The deterioration in debt indicators was widespread and impacted countries in all regions. Across all low- and middle-income countries, the rise in external indebtedness outpaced Gross National Income (GNI) and export growth. 

“Low- and middle-income countries’ external debt-to-GNI ratio (excluding China) rose to 42 percent in 2020 from 37 percent in 2019 while their debt-to-export ratio increased to 154 percent in 2020 from 126 percent in 2019.”