Borrowing by Low and Middle-Income Economies More than Tripled in 2017

Borrowing by low and middle-income economies from external official and private creditors surged to $607 billion in 2017 from $181 billion the previous year, the highest level in three years.

This comes as the net debt inflows surpassed equity inflows for the first time since 2013, the World Bank’s International Debt Statistics 2019 shows.

Net financial inflows including debt and equity jumped to $1.11 trillion, the highest level in four years, the report indicates.

According to the report, external debt stocks of low and middle-income countries rose to $7.1 trillion last year, a 10 percent increase from 2016. The ratio of debt-to-gross national income (GNI) on average was steady at 25 percent and the ratio of debt-to-export earnings declined to 102 percent.

Nevertheless, 11 low and middle-income countries, including Lebanon, Mongolia, and Mozambique, have debt-to-GNI ratios of over 100 percent.  

The database measures stocks and flows of debt borrowed from creditors outside the country and other financial flows for 121 low and middle-income countries. Sources underlying the data include loan-by-loan data on public and publicly guaranteed external debt, aggregate data on non-guaranteed private sector external debt, the balance of payments statistics, official aid flows, and short-term external debt.

Regionally, Sub-Saharan Africa countries added almost 16 percent more external debt, South Asian economies added to external debt stocks by 11 percent, and economies of the Middle East and North Africa increased external debt stocks by close to 12 percent, while external debt stocks rose by near 3 percent in the countries of Eastern Europe and Central Asia and In Latin America and the Caribbean. 

Net public and publicly guaranteed bond issuance accounted for 85 percent of net long-term debt inflows from all official and private creditors combined. New bond issuance jumped to a record high of $355 billion in 2017 from $196 billion in 2016.

Equity, as opposed to debt inflows to low and middle-income countries were down slightly to $511 billion in 2017, and foreign direct investment inflows shrank for the second consecutive year, falling 3 percent to $454 billion. However, foreign direct investment inflows to the poorest countries – those eligible for financing from the International Development Association – rose 1 percent. 

New commitments to IDA-eligible countries from private creditors rose to $9.2 billion in 2017, more than three times the amount in 2016, The fact that over one third of these loans were contracted by IDA-only countries assessed to be at high risk of debt distress underscores rising concerns about debt sustainability, given that loans from private creditors typically have bullet repayments or relatively short maturities and carry market interest rates.

International Debt Statistics 2019 provides a wealth of statistics and analysis on the external debt stocks and financial flows (debt and equity) of the world’s economies in 2017.