Developing nations’ debt servicing costs: World Bank for using relaxed global financing terms

LONDON: The gap between developing nations’ debt servicing costs and new financing hit a more than 50-year high of USD741 billion between 2022 and 2024, the World Bank said on Wednesday, urging countries to use the more relaxed global financing conditions to bring their houses in order.

In its annual International Debt Report, the Washington-based lender also found that overall interest payments had hit a fresh record of USD415.4 billion in 2024 despite some relief from falling global interest rates. “Global financial conditions might be improving, but developing countries should not deceive themselves: they are not out of danger,” World Bank Chief Economist Indermit Gill said in the report, adding that debt build-up is continuing “sometimes in new and pernicious ways.”

Bond markets reopened for most countries as the long global interest rate hiking cycle ended, paving the way for billions of dollars in new issuance. But this came at a cost, with interest rates on bond debt near 10 percent - roughly double those before 2020 - and options for low-cost financing dwindling.

Emerging nations are also increasingly turning to domestic debt markets to fund themselves. In 50 countries, domestic debt grew at a faster pace last year than external debt. The bank said this was a sign of evolving local credit markets but cautioned that it could squeeze local bank lending to the private sector and potentially raise the cost of refinancing due to shorter maturities.