By Chinwendu Obienyi
The World Bank has hinted that a stronger US dollar is likely to exacerbate debt service payments for developing countries, making it more expensive for them to make payments.
The bank in its International Debt Report for 2023, disclosed this recently whilst revealing that Nigeria was a top recipient of its fresh loans in 2022, with about $2.9 billion released to the country. According to the bank Nigeria was followed by Tanzania, which got $2.7 billion in the same year.
Nigeria has been battling with FX challenges since 2017 and its exchange rate has been dwindling for a while now. Furthermore, the nation’s domestic currency had on Wednesday depreciated by 4.38 per cent to close at N904.65/$1 at the close of business on Wednesday, data from FMDQ revealed.
It will be recalled that the Debt Management Office (DMO) revealed that Nigeria owes the World Bank a total of $14.51 billion as of June 30, 2023. Hence, the bank stated further in its report, noted that developing countries face debt crisis risk at the moment and have spent $443.5 billion on debt servicing in 2022.
Similarly, the World Bank warned that the poorest countries are at risk of debt crises due to the surge in global interest rates.
The World Bank warned that the poorest countries are at risk of debt crises due to the surge in global interest rates.
According to the Washington-based global bank, the rise in borrowing costs has diverted resources away from essential sectors such as education, health and the environment.
“Debt-service payments which include principal and interest increased by 5 per cent over the previous year for all developing countries. The 75 countries eligible to borrow from the World Bank’s International Development Association (IDA) which supports the poorest countries paid a record $88.9 billion in debt-servicing costs in 2022.
Over the past decade, interest payments by these countries have quadrupled, to an all-time high of $23.6 billion in 2022. Overall debt-servicing costs for the 24 poorest countries are expected to balloon in 2023 and 2024 by as much as 39 per cent”, it said.
The World Bank also noted the effect of a stronger US dollar on debt service payments for developing countries, saying this is making it even more expensive for countries to make payments.
It said, “Under the circumstances, a further rise in interest rates or a sharp drop in export earnings could push them over the edge. As debt-servicing costs have climbed, new financing options for developing countries have dwindled”.