Development in the world’s poorest countries is projected to further lag behind as the cost of servicing debt has risen, the United Nations Development Programme (UNDP) says in a new policy paper.
- •In 2023, developing economies’ total external debt servicing reached a record US $1.4 trillion.
- •Debt servicing costs have tripled and interest rates quadrupled over the last decade, now totalling over US$36 bn.
- •According to the UN agency, interest payments now exceed 10% of government revenue in 56 countries, and 20% in 17 of them.
“Central debt vulnerability indicators remain highly elevated and have continued to worsen across many countries, thereby intensifying a trade-off between development spending and a high and rising debt service burden, and with especially devastating consequences in the poorest of countries,” Lars Jensen, a Senior Economist with the UNDP, says.
According to the agency, debt has stabilised since 2021, but net interest payments have risen to 9.5% of revenue for the median developing economy government, up from 6.4% in 2021. Such high repayment rates unequally affect countries with significant development spending needs and limited fiscal space.
According to Central Bank of Kenya (CBK) data, Kenya recorded the highest level of public debt in January 2024 when it owed KSh 11.24 trillion, with 5.15% owed to international creditors. The country reduced its default risk by issuing a new US $1.5bn Eurobond due in 2031 as part of its strategy to “proactively manage public debt liabilities.”
“The debt-development trade-offs threaten a lost decade of development progress for many of the world’s poorest nations,” said Achim Steiner, UNDP Administrator. “The international community must not wait until the last minute to provide tangible financial lifelines. A new debt relief initiative makes financial and political sense.”
According to the UNDP, policymakers in G20 nations should prioritise effective and orderly debt restructuring, reduce borrowing rates, and support the poorest countries with a systemic debt relief initiative.
