WB: Tanzania and peers face rising debt costs, echoing global challenges

Tanzania and other developing countries spent a record $443.5 billion in total to service their external public and publicly guaranteed debt in 2022, the World Bank reveals.

According to the bank, this was five percent more compared to the preceding year, due to the rising servicing costs associated with the surge in global interest rates.

In its latest International Debt Report, the WB says that the impact of this increase is acutely felt as precious resources were diverted away from critical sectors such as health, education, and the environment.

With interest rates on the rise globally, the cost of loans is expected to become even more formidable, as overall debt-servicing costs for the 24 poorest countries are expected to balloon in 2023 and 2024—by as much as 39 percent, the report finds.

Tanzania seems to be spared on those projections as it been categorized as a middle-income country in WB database.

However, as a country eligible to borrow from the World Bank's International Development Association (IDA), which primarily assists the poorest nations, Tanzania is not immune to the escalating costs.

In 2022, the 75 IDA-eligible countries, including Tanzania, disbursed a record $88.9 billion in debt-servicing expenses.

WB’s senior Vice President Mr Indermit Gill said Record debt levels and high interest rates have set many countries on a path to crisis.

“‘Every quarter that interest rates stay high results in more developing countries becoming distressed—and facing the difficult choice of servicing their public debts or investing in public health, education, and infrastructure,” he said.

He said this situation warrants quick and coordinated action by debtor governments, private and official creditors, and multilateral financial institutions—more transparency, better debt sustainability tools, and swifter restructuring arrangements.

Surging interest rates have intensified debt vulnerabilities in all developing countries. In the past three years alone, there have been 18 sovereign defaults in 10 developing countries—greater than the number recorded in all of the previous two decades.

The WB says about 60 percent of low-income countries are at high risk of debt distress or are already in it.

On the other hand, as the debt-servicing costs have climbed, new financing options for developing countries have dwindled.

In 2022, new external loan commitments to public and publicly guaranteed entities in these countries dropped by 23 percent to $371 billion—the lowest level in a decade according to the WB and most of the Private creditors largely abstained from developing countries.

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