Statsguru: G20 puts the rising debt burden of poorer countries in focus

The G20 meeting in India put the rising debt burden of poorer countries in focus.

The amount of loans taken by emerging markets and developing countries relative to their economic heft, as measured by the ratio of their debt to gross domestic product (GDP), is above levels seen before the pandemic, and it is expected to remain elevated even into 2024.

The amount of money they pay out as interest expense relative to GDP is expected to increase in the coming years, leaving less money for other priorities including poverty alleviation. There has been a widening gap with advanced economies on interest paid relative to GDP.

Economic resurgence is unlikely to emerge as a saviour, as growth is expected to be slower in 2023 and 2024 for emerging markets and developing countries excluding China than it was in 2022 or 2021.
 

This could affect public investment in these countries, which often have large infrastructure gaps. They already saw investments slowing in the decade ending 2021.

The share of reserves to external debt for all low-income and middle-income countries has been shrinking. But those at the bottom are likely to be worst affected. The World Bank noted in December 2022 that the poorest countries saw their debt treble to $1 trillion over the decade ending 2021. Around 60 per cent of them are “already at high risk of debt distress or already in distress”.

China has been their biggest lender. Its share of bilateral debt owed by these nations rose from 18 per cent in 2010 to 49 per cent in 2021; and is expected to account for 66 per cent of debt-service payments on their bilateral debt, according to the World Bank.

The G20 meeting sought haircuts on loans from China, while China sought joint action-seeking multilateral organisations to also take similar hits on their loans.

The role of private creditors hasn’t been discussed as much. Their share in external debt for low-income and middle-income countries has risen from 46 per cent in 2010 to 61 per cent in 2021.