The poorest countries in the world are facing a major debt crisis, as they owe trillions of dollars due to high interest rates and unfair restructuring, a crisis that makes it difficult for these countries to achieve sustainable development and confront economic and social challenges.
A report on the American Bloomberg website, by writers Ezra Feser and Yinka Ibukun, said that a debt crisis has begun to brew in all countries of the developing world, and in 2024 these countries will have to repay about $200 billion in bonds and other loans.
He added that bonds issued by Bolivia, Ethiopia, Tunisia and dozens of other countries are either already in default, or are trading at levels that indicate investors are preparing for them to default.
The authors described the situation as particularly dangerous, because these countries have small local markets, and must resort to global lenders to obtain the funds necessary to spend on hospitals, roads, schools, and other vital services.
With the Federal Reserve pledging to keep US interest rates high for longer, the debt market of these countries, which was once active, is drying up, depriving them of further borrowing, and increasing the many risks associated with interest rates in 2024, according to a Bloomberg report. .
The writers quoted the Executive Director of the Institute of International Finance, Sonia Gibbs, as saying, “Global rates are much higher, and the incentive to invest in these markets is a challenge when you can get 4% or 5% of US Treasury bonds.”
The writers added that there was a series of global shocks that sparked the debt crisis, which began with the spread of the Covid-19 pandemic, as rich countries printed money to distribute stimulus checks, while poor countries were forced to borrow to maintain the continuity of their economies.
The authors stated that the debts of the 42 countries – which the Institute of International Finance classifies as border markets – amounted to $3.5 trillion in 2023, which is a record number and represents about double what it was a decade ago.
It is noteworthy that frontier markets, unlike developed and emerging markets, are characterized by relatively small trading volumes, a limited number of listed companies, and strict restrictions on the flow of foreign investments and asset ownership.
The authors pointed out that many governments are working to reduce spending in order to remain able to pay their debts, because debt payments are consuming their budgets.
According to a Bloomberg report, about 3.3 billion people – about half of the world’s population – live in countries that spend more on debt payments than on education and health care, based on data from the United Nations Conference on Trade and Development.
The writers quoted the chief economist at the United Nations Trade Agency, Penelope Hawkins, as saying, “Currently, developing countries are diverting the resources needed for development to service their debts.”
They said that investors in frontier market debt and equity are preparing to face or embrace the pain, and showed that, in contrast to the United States and other countries that issue debt in their own currencies, frontier market countries cannot alleviate their burdens through inflation by printing money, and often issue… Debts payable in another country’s currency through Eurobonds, for example.
The writers quoted specialists as saying, “This is the worst crisis in the past thirty years for these countries, as these markets were not created in a way that could manage these Eurobond issues in cycles like these.”
Yesterday, the World Bank said that developing countries spent nearly half a trillion dollars on servicing their external debt in 2022, depleting their allocations for health, education, and combating climate change.
The bank stated in a report on international debt that debt service payments – including principal and interest – rose 5% from last year to an unprecedented level of $443.5 billion, amid the largest increase in interest rates around the world in 4 decades.
The World Bank indicated that payments could rise by 10% in 2023-2024.
