Now debt burden for poor nations hits 20 year high

Many developing nations have been hit hard by the economic fallout from the global pandemic. [Courtesy]

Developing countries are paying more to service their debts than at any other time in the past two decades, with a heavier burden on the horizon if the United States raises interest rates this year as expected, a leading debt campaigner has said.

Many developing nations have been hit hard by the economic fallout from the global pandemic. And while wealthy creditor countries granted the poorest ones temporary relief through a Debt Service Suspension Initiative, that programme is now expiring and governments must resume payments.

The warning from the UK-based Jubilee Debt Campaign echoed a call to action earlier this month from the World Bank, which said the pandemic-induced downturn had left around 60 per cent of low-income countries in or at high risk of debt distress.

“The debt crisis continues to engulf lower-income countries, with no end in sight unless there is urgent action on debt relief,” Heidi Chow, Jubilee’s Executive Director, said in a statement.

Data compiled by Jubilee shows that developing countries' debt payments rose 120 per cent between 2010 and 2021, reaching their highest level since 2001.

Average government external debt payments represented 14.3 per cent of government revenue in 2021, more than double the 6.8 per cent recorded in 2010.

The US Federal Reserve is due to meet this week and markets are pricing in four interest rate hikes for this year.

Higher Fed rates will likely make borrowing more expensive for emerging market countries, which will need to price debt at a premium as safe haven baseline US Treasuries become more attractive to investors.