#18 – Debt Crisis Looms for World’s Poorest Nations

by Shealeigh
Published: Last Updated on

The world’s poorest countries will pay 35 percent more in debt interest bills in 2023 than they did in 2022 due to costs associated with the COVID-19 pandemic and a dramatic increase in the price of imported food, as reported by the World Bank. Seventy-five impoverished nations, most in sub-Saharan Africa, will spend roughly $62 billion to meet the repayment requirements of loans primarily obtained in the past decade, according to a December 2022 article from the Guardian by Phillip Inman. A Guardian article by Kaamil Ahmed, published in April 2023, reported that ninety-one low-income countries will spend more than 16 percent of their revenues on external debt repayments, the highest level in twenty-five years.

Poor countries are facing mounting difficulties repaying their debts due to soaring interest rates and the rise in the dollar’s value since 2019, severely limiting their ability to finance their debts. Moreover, the World Bank expressed concern that debt payments by these countries consume funds needed for vital social services such as education and health care.

As Brett Wilkins reported in October 2022 for Common Dreams, a recent study by the UK-based charity Save the Children found that in 2020, a third of all low- and middle-income countries spent more on external debt repayment than education. In a plea to rich countries, World Bank president David Malpass warned that forcing poor nations to divert cash from welfare programs to debt interest payments would likely produce “social unrest,” Inman reported for the Guardian.

Developing countries have taken on increased debt over the last few years to cover healthcare spending during the pandemic and the growing costs of gas and food, Inman explained. Poor nations continue to lack the ability to offset these rising costs through increased taxes, forcing them to rely on loans from private lenders. By the end of 2021, Inman wrote, “61% of long-term public and publicly guaranteed debt worth $3.6tn was owed to private creditors rather than [governments of wealthy nations] or other official creditors, compared with 46% in 2010.” Inman explained that the payback time for loans taken by developing countries from private financial institutions is typically less than half that of loans provided by wealthy governments, and the interest rates charged by private lenders are generally higher. At the same time, Inman observed that China and, to a lesser extent, India, Turkey, and Russia, have become major creditors for poor countries.

The elite financial media, including the Wall Street Journal, Bloomberg, CNBC, and the Economist, have heavily covered the looming debt crisis as an investment story, emphasizing the risk of default by African nations such as Ghana and Zambia. Although reports by these financial news outlets have sometimes touched on the enormous humanitarian costs that surging debt-service payments impose on developing nations, typically the main concern of their reporting is financial stability rather than the evisceration of poor nations’ educational and health systems and its consequences. Moreover, these outlets—and establishment newspapers such as the Washington Post and New York Times—have often framed their coverage in terms of demands by the US and other Western nations that China should offer debt relief to distressed debtor nations. In the process, corporate coverage has obscured the key role of private creditors in squeezing ever-larger debt repayments from the world’s poorest nations. The most popular commercial news media in the United States—including ABC, CBS, NBC, Fox News, and CNN—have largely ignored this story.

Kaamil Ahmed, “World’s Poorest Nations Spend 16% of Revenue on Debt, the Highest in 25 Years,” The Guardian, April 11, 2023.

Phillip Inman, “World’s Poorest Countries’ Debt Interest Payments Rise 35%, Report Says,” The Guardian, December 6, 2022.

Brett Wilkins, “1 in 3 of World’s Poorest Countries Spend More on Debt Repayments Than Education,” Common Dreams, October 11, 2022.

Student Researcher: Cem İsmail Addemir (Illinois State University)

Faculty Evaluator: Steve Macek (North Central College)