High interest rates paid by the poorest countries raise fears of a global debt crisis | Interest rate

Fears of a deepening global debt crisis have been underscored by research showing that low-income countries are paying skyrocketing interest on their foreign borrowing.

Analysis by campaign group Debt Justice found that while interest rates have risen for rich and poor countries since the start of 2022, the increases have been particularly severe for some of the poorest and most vulnerable countries.

With debt relief expected to be high on the agenda of the World Bank’s annual meeting, which begins October 10, Debt Justice said interest rates have risen by an average of 5 .7 percentage points for low-income countries, compared to an increase of 2 points. in the USA.

Many of the 27 countries that provided data were facing well above average interest rates, led by war-ravaged Ukraine, which saw the cost of new borrowing rise by 10.2% at 46% since the beginning of 2022.

Ethiopia and Zambia both saw a 25 point increase in their debt service charges, as measured by the yield – or interest rate – of their foreign currency bonds. Interest rates in two-thirds of the countries surveyed are now above 10%, intensifying debt problems and making it nearly impossible for them to borrow from private lenders, the campaign group said.

Heidi Chow, Executive Director of Debt Justice, said: “Many countries were already cutting essential spending to deal with the debt crisis, before rising interest rates made an alarming situation even worse.

“Countries like Pakistan are also facing massive costs due to the widespread devastation caused by the climate emergency. We urgently need mechanisms to quickly cancel the debts of countries in need, especially high-interest loans from private lenders.

Of the 27 low-income governments with public information on their foreign currency obligations, Debt Justice found that nine had yields above 20%: El Salvador, Ethiopia, Ghana, Maldives, Pakistan, Sri Lanka, Tunisia, Ukraine and Zambia. Ten others had returns between 10 and 20%: Angola, Cameroon, Egypt, Honduras, Kenya, Mongolia, Nigeria, Papua New Guinea, Rwanda and Tajikistan.

In addition to higher borrowing costs, the study found that debt repayments were also made more expensive by the rise in the US dollar, which had appreciated by an average of 14% against the 27 countries to low income. External debt is generally denominated in foreign currencies, in particular the dollar.

World Bank President David Malpass said in a speech last week that debt relief would play a “key role” in easing pressures on poor countries’ budgets.

Malpass said the new financial crisis that had followed Covid-19 “finds developing countries with eroded fiscal positions, including high debt and depressed fiscal revenues. Countries do not have sufficient fiscal reserves to support major expenditures for growth and development.

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