Tag: world bank

The World Bank’s latest International Debt Report has shown that developing countries spent a record $443.5 billion to service their external public debt in 2022. 

This, according to the report released on Wednesday, is amid the biggest surge in global interest rates in four decades. 

Poorest countries,  shows the report, face risk of debt crises as borrowing costs surge. 

The increase in costs shifted scarce resources away from critical needs such as health, education, and the environment.

A statement by the World Bank said debt-service payments increased by five per cent over the previous year for all developing countries. 

“The 75 countries eligible to borrow from the World Bank’s International Development Association (IDA)—which supports the poorest countries—paid a record $88.9 billion in debt-servicing costs in 2022. Over the past decade, interest payments by these countries have quadrupled, to an all-time high of $23.6 billion in 2022. Overall debt-servicing costs for the 24 poorest countries are expected to balloon in 2023 and 2024—by as much as 39 percent, the report finds,” the statement said. 

IDA-eligible countries have in the last decade added to their debt at a pace that exceeds their economic growth. This, the report shows, is a red flag for their prospects in the future. 

“In 2022, the combined external debt stock of IDA-eligible countries hit a record US$1.1 trillion—more than double the 2012 level. From 2012 through 2022, IDA-eligible countries increased their external debt by 134%, outstripping the 53% increase they achieved in their gross national income (GNI),” said the bank. 

World Bank Group’s Chief Economist and Senior Vice President Indermit Gill said record debt levels and high interest rates set many countries on a path to crisis.

“Every quarter that interest rates stay high results in more developing countries becoming distressed—and facing the difficult choice of servicing their public debts or investing in public health, education, and infrastructure. The situation warrants quick and coordinated action by debtor governments, private and official creditors, and multilateral financial institutions—more transparency, better debt sustainability tools, and swifter restructuring arrangements. The alternative is another lost decade,” Gill said. 

Haishan Fu, Chief Statistician of the World Bank and Director of the World Bank’s Development Data Group, said knowing what a country owes and to whom is essential for better debt management and sustainability. 

“The first step in avoiding a crisis is having a clear picture of the challenge. And when problems arise, clear data can guide debt restructuring efforts to get a country back on track towards economic stability and growth. Debt transparency is the key to sustainable public borrowing and accountable, rules-based lending practices which are so vital to ending poverty on a livable planet,” Fu said. 

Surging interest rates, the report added, have intensified debt vulnerabilities in all developing countries. 

“In the past three years alone, there have been 18 sovereign defaults in 10 developing countries—greater than the number recorded in all of the previous two decades. Today, about 60 percent of low-income countries are at high risk of debt distress or already in it.

“Interest payments consume an increasingly large share of low-income countries’ export, the report finds. More than a third of their external debt, moreover, involves variable interest rates that could rise suddenly. Many of these countries face an additional burden: the accumulated principal, interest, and fees they incurred for the privilege of debt-service suspension under the G-20’s Debt Service Suspension Initiative (DSSI). The stronger US dollar is adding to their difficulties, making it even more expensive for countries to make payments. Under the circumstances, a further rise in interest rates or a sharp drop in export earnings could push them over the edge.

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“As debt-servicing costs have climbed, new financing options for developing countries have dwindled. In 2022, new external loan commitments to public and publicly guaranteed entities in these countries dropped by 23% to $371 billion—the lowest level in a decade. Private creditors largely abstained from developing countries, receiving $185 billion more in principal repayments than they disbursed in loans,” the bank said.

It added that  for the first time since 2015 private creditors have received more funds than they put into developing countries. 

It explained that new bonds issued by all developing countries in international markets dropped by more than half from 2021 to 2022, and issuances by low-income countries fell by more than three-quarters. 

“New bond issuance by IDA-eligible countries fell by more than three-quarters to US$3.1 billion.

“With financing from private creditors drying up, the World Bank and other multilateral development banks stepped in to help close the gap. Multilateral creditors provided $115 billion in new low-cost financing for developing countries in 2022, nearly half of which came from the World Bank. Through IDA, the World Bank provided $16.9 billion more in new financing for these countries than it received in principal repayments—nearly three times the comparable number a decade ago. In addition, the World Bank disbursed $6.1 billion in grants to these countries, three times the amount in 2012,” the bank said. 

The latest International Debt Report marks the publication’s 50th anniversary.  

The Federal Government has partnered with the World Bank to introduce a new initiative called the State Action on Business Enabling Reforms (SABER) programme.

This programme is a continuation of the successful States Fiscal Transparency, Accountability, and Sustainability (SFTAS) Programme and aims to enhance Nigeria’s business environment at the state level. The SABER programme will be implemented from 2023 to 2025.

The announcement was made by the Minister of Finance and Coordinating Minister of the Economy, Mr. Wale Edun, during the four-day Federation Account Allocation Committee (FAAC) retreat in Asaba, Delta State.

Mr. Edun stated that the SABER Programme is awaiting approval from the National Assembly as part of an abridged External Borrowing Plan.

    The programme’s objective is to incentivize and strengthen the implementation of business enabling reforms including land administration, regulatory framework for private investment in fiber optic infrastructure, public-private partnership and investment promotion frameworks, tax administration, and the business enabling regulatory environment.

    Mr. Edun reiterated the Federal Government’s commitment to fiscal and monetary reforms, which will create a conducive business environment, diversify the revenue base, facilitate investment in critical infrastructure, and ensure macroeconomic stability. He expressed confidence that together, the government and the World Bank will build a resilient economy for Nigeria.

    He acknowledged the success of the $1.5 billion SFTAS Programme-for-Results, which will conclude in December 2023. He applauded all 36 states for their remarkable achievements in areas such as fiscal transparency and accountability, domestic revenue mobilization, efficiency of public expenditures, and debt sustainability.

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    The minister urged the sub-national governments to continue these reforms beyond the SFTAS period.

    The World Bank Senior Economist, Mr. Samer Matta, commended the federal and state governments for their fiscal reforms under the SFTAS Program.

    He emphasized the importance of sustaining these results, especially for new administrations, by adhering to the SFTAS Charter signed by Governors in August 2022. Mr. Matta attributed the success of the programme to various factors, including transparent and credible results verification, robust eligibility criteria, performance-based assessment, and active peer learning among states facilitated by the Nigerian Governors’ Forum.

    World Bank Task Team Leader for SABER, Ms. Bertine Kamphuis, also expressed optimism about sustaining the SFTAS achievements. She highlighted the incorporation of SABER into the sustainability strategy, utilizing two SFTAS eligibility criteria, namely the timely publication of National Chart of Account compliant budgets and IPSAS-compliant audited financial statements, and the importance of debt sustainability reporting.

    The launch of the SABER programme underscores the commitment of the Federal Government and the World Bank to improve the business environment and promote economic growth at the state level in Nigeria.

This year’s International Day for the Eradication of Poverty spotlighted  decent work and social protection, putting dignity in practice for all. Assistant Business Editor COLLINS NWEZE writes that rising debt positions and challenges in accessing financial services have contributed to rising poverty levels globally.

The World Bank says that ending poverty remains a major global challenge.

  Today, almost 700 million people around the world live in extreme poverty, subsisting on less than $2.15 per day. After decades of sustained poverty reduction, a period of overlapping shocks and crises resulted in about three years of lost progress between 2020 and last year.

A great finance divide and growing debt burdens are severely limiting the capacities of many developing countries to provide the services that their people need.

“Too many people are being left behind in the journey to a more prosperous future. 

“Much of this is linked to strained economies and limited fiscal space in the countries where they live,” said Under Secretary-General Li Junhua, Head of the Department of Economic and Social Affairs, adding: “The international community needs to do a better job of creating the space for developing countries to better support the needs of their citizens.”

The bank explained that at their rates of progress, the world would likely not meet the global goal of ending extreme poverty by the end of the year, with estimates indicating that nearly 600 million people would still be struggling with extreme poverty then.

Extreme poverty is concentrated in places where it will be hardest to eradicate— among the least developed countries, in conflict-affected areas, and in remote, rural areas. The outlook is also grim for the nearly 50 per cent of the world’s population who live on less than $6.85 a day – the measure used for upper-middle-income countries.

“Ending poverty is a challenge that requires a multifaceted approach,” says Luis-Felipe Lopez-Calva, World Bank Global Director for Poverty & Equity.

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“Countries cannot adequately address poverty and inequality without also improving people’s well-being, including through more equitable access to health, education and basic infrastructure. Empowering women, girls and youth will maximise impact across communities and generations. Policy makers must intensify efforts to grow their economies while protecting the most vulnerable people and families. This includes strengthening investments in social protection systems.”

Regular employment provides individuals and families with an essential source of income and allows them to move up the economic ladder, build wealth, and invest in education, health and nutrition that help to break the cycle of intergenerational poverty. It also provides them with the dignity of work.

Yet, most working-age people in developing countries work in informal, low-productivity, low-paying, and insecure jobs; women, girls, and the elderly are overrepresented in these jobs.

The bank explained that with nearly four million young people expected to reach working age every month globally until 2030,  countries need to focus on creating good, quality jobs in the formal sector, which often come with benefits such as health insurance, retirement plans, and social security coverage. 

Expanding access to better educational opportunities for children and youth can equip them with the skills they need to compete for good jobs in the future.

But creating this enabling environment at the country level will also call for efforts for a more supportive global environment.