World Bank warns developing world 'not out of danger' as debt costs hit record

By Libby George

LONDON, Dec 3 (Reuters) - The gap between developing nations' debt servicing costs and new financing hit a more than 50-year high of $741 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 $415.4 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% - 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. 

Emerging markets reworked nearly $90 billion of external debt in 2024 - a 14-year high - including restructurings in Ghana, Zambia, Sri Lanka, Ukraine and Ethiopia and debt forgiveness in Haiti and Somalia. 

Meanwhile, net flows of bilateral lending collapsed 76% to $4.5 billion, a level not seen since the 2008 financial crisis, forcing countries to seek more costly private financing.     

While multilateral lending rose and the World Bank itself lent a record $36 billion, 54% of low-income nations are now in debt distress or facing high debt risks. 

"Policymakers everywhere should make the most of the breathing room that exists today to put their fiscal houses in order instead of rushing back into external debt markets," Gill said. 

(Reporting by Libby George; Editing by Karin Strohecker and Joe Bavier)