Poorest Nations Hit $9.4 Trillion Debt Record, World Bank Warn

The World Bank has sounded the alarm on global finances, revealing that debt owed by developing countries has climbed to a massive $9.4 trillion last year. For the world’s most vulnerable nations, the cost of borrowing has reached all-time highs, marking the most expensive loans since the late 1980s.

The financial pressure is intensifying because the fastest rate of increase in debt for these countries was 5.5% last year. World Bank chief Haishan Fu noted that while access to international financing has improved, the price of that capital has not. Low- and middle-income nations are simply borrowing more and paying significantly more.

On average, the poorest nations face an interest rate of 8.2% on new borrowings. Recent loans to countries like Laos, which sat at 11.5%, and the Republic of Congo, at 13.88%, highlight the extreme costs. According to the Bank, these debt burdens are now linked to severe threats to global food security.

Facing this financial crisis, the UK is moving to take action through its upcoming G20 presidency. Prime Minister Andy Burnham has appointed former Labour leader Gordon Brown to look into possible changes to the international debt regime. Ed Miliband, the UK foreign secretary, is already pushing for a 'new deal' for heavily indebted states.

This proposed solution involves using the balance sheets of the World Bank and other multilateral development banks to buy back outstanding debt. This aims to extend repayment periods and pull down interest rates. However, the current landscape is complex, as most of the creditors are now private-sector bondholders rather than governments.

The global movement to reform international debt is not new; demands for change are growing from African Union heads of state and under the G20 chairs of Brazil and South Africa.