Middle East and North Africa debt climbs to a record $443bn, World Bank says

Total external debt in the Middle East and North Africa climbed to $443 billion last year as low and middle-income nations spent a record $1.4 trillion on servicing their foreign debt, the World Bank said in a report on Tuesday. Last year's figure marked a roughly 23 per cent increase since 2020, according to data from the World Bank’s latest International Debt Report. Total external debt owed by all low and middle-income countries hit $8.8 trillion at the end of last year, an 8 per cent increase since 2020. The Mena region's external debt level of $443 billion is its highest since at least 2013, the furthest year in which World Bank data goes back. Private creditors accounted for 40 per cent of the region's public and publicly guaranteed (PPG) debt last year, compared to 36 per cent for multilateral institutions and 24 per cent for bilateral partners. Egypt and Morocco held the highest levels of external debt in the region at roughly $168 billion and $69.3 billion, respectively. Egypt, whose economy is struggling in the midst of regional conflicts, received significant loans from the International Monetary Fund in the last year to help stabilise its economy. Lebanon, whose debt-to-GDP ratio is projected to be at 140 per cent by the end of 2024, held roughly $67 billion in total external debt last year, the vast majority of it coming from private creditors. Jordan ($44.63 billion), Tunisia ($41.297 billion) and Iraq ($20.33 billion) were also among the highest holders of external debt in the region. The report found that developing nations spend a record $1.4 trillion to service their foreign debt in 2023 largely because of soaring interest payments, which rose to roughly $406 billion. Principal repayments remained around a “stable” 951 billion, the World Bank said. “The result, for many developing countries, has been a devastating diversion of resources away from areas critical for long-term growth and development such as health and education,” the bank said. The Middle East spent $24 billion on principal repayments and $12 billion on interest payments. Egypt spent the most on interest payments in the region at $6.27 billion. Syria did not make any payments on interest or principal repayments, data showed. The world's poorest countries, which are eligible to borrow from the bank's International Development Association lending arm, paid $96.2 billion to service their debt last year while interest costs rose to an all-time high of $34.6 billion. Interest payments for the world's most vulnerable countries are now roughly 6 per cent of export earnings, the highest level this century. “The squeeze on the poorest and most vulnerable countries … has been especially fierce,” the World Bank said. Excluding China, debt-servicing costs for low and middle-income countries climbed to $971.1 billion last year, up 19.7 per cent the year before due to record debt levels, interest rates reaching a two-decade high amid a stronger US dollar. The Covid-19 pandemic and the subsequent global surge in interest rates exacerbated developing nations' debt burdens as it became it more expensive for those economies to borrow. While interest rates are now easing, they are still expected to remain above pre-pandemic levels. Private lending also slowed during this period, leading multilateral institutions to become critical lenders for low and middle-income countries. Both Egypt and Pakistan have received major loan packages from the IMF. The World Bank said it and other multilaterals became de facto lenders of last resort in 2022 and 2023 for the world's poorest countries, providing roughly $51 billion more in 2022-23 than they collected in debt-service payments. The World Bank said it accounted for $28.1 billion of that sum. Meanwhile, debt stock owed to multilateral creditors rose 6.8 per cent last year, compared to a 0.8 per cent increase for private creditors. “In highly indebted poor countries, multilateral development banks are now acting as a lender of last resort, a role they were not designed to serve,” World Bank chief economist and senior vice president Indermit Gill said in a news release. “That reflects a dysfunctional financing system: except for funds from the World Bank and other multilateral institutions, money is flowing out of poor economies when it should be flowing in,” the World Bank said. A separate report from the Institute for International Finance showed global debt surged by more than $12 trillion during the first three quarters of this year to a new high of almost $323 trillion. It is the third-largest quarterly increase on record following two separate periods during the Covid-19 pandemic. Global debt is projected to settle at $320 trillion by the end of this year and surge in 2025 and beyond, largely because of government spending. Today's debt-to-GDP ratio of 326 per cent is more than 30 per cent lower than it was in 2020, although some countries such as Turkey, Nigeria and Brazil have seen increases in their debt ratios. The Institute for International Finance also said increasing trade tensions could undermine growth prospects, while rising government interest costs could further deepen fiscal strains. “Pursuing expansive fiscal policies in an era of rising geoeconomic fragmentation may prove challenging,” the institute said.

Middle East and North Africa debt climbs to a record $443bn, World Bank says

Developing nations spent a record $1.4 trillion on servicing foreign debt last year