Figures released recently by the Jubilee Debt Campaign, based on IMF and World Bank databases, show that developing country debt payments increased by 60% between 2014 and 2017. They are now at the highest level since 2004.
The new analysis from Jubilee Debt Campaign shows that average government external debt payments across the 126 developing countries for which data is available have increased from 6.7% of government revenue in 2014 to 10.7% of government revenue in 2017, an increase of 60%. This is the highest level since 2004, when such payments were 12.6% of government revenue.
This rapid increase comes after a lending boom due to global interest rates being low. External loans to developing country governments almost doubled from $200 billion per year in 2008 to $390 billion in 2014. They have since fallen back to between $300-350 billion per year from 2015-2017, but this is still well above levels seen prior to the global financial crisis.
The fall in global commodity prices in mid-2014 has reduced the income of many governments which are reliant on commodity exports for earnings. They also caused exchange rates to fall against the US dollar, which increases the relative size of debt payments as external debts tend to be owed in dollars.
Tim Jones, economist at the Jubilee Debt Campaign, said “Debt payments for many countries have risen rapidly as a result of a lending boom and fall in commodity prices. The situation may worsen further as US dollar interest rates rise, and as other central banks reduce monetary stimulus. Debt payments are reducing government budgets when more spending is needed to meet the Sustainable Development Goals”.
“Where there are debt crises, the risk is that the IMF will bail out reckless lenders, and the debt will remain with the country concerned. Instead, reckless lenders need to be made to bear some of the costs of economic shocks through lower debt payments, allowing governments to maintain spending on essential services”.
Countries with the highest debt payments in 2017 include commodity producers which have been hit by price falls, including Ghana, Mozambique, Angola, Chad, Gabon and Laos. Countries which are paying debts contracted by previous dictators, including Gambia and Tunisia countries which have had high debts for many years, sometimes decades, but have never been allowed into debt relief schemes, including Lebanon, Jamaica, Grenada and Sri Lanka.
Developing country external debt payments fell between 2000 and 2010 because of rising prices of commodity exports and the Heavily Indebted Poor Countries Initiative, which cancelled almost $130 billion of debts owed to governments and multilateral institutions for 36 low and lower middle-income countries. The IMF say that of 67 impoverished countries they assess, 30 are now in debt distress or at high risk of being so. This has doubled from 15 in 2013.