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Developing countries have amassed high levels of debt that could be difficult to repay as the global economy slows and interest rates rise, the World Bank said in a new report.

By the end of 2021, developing countries owed about $9.3 trillion in external debt, more than twice what they owed in 2010, according to the World Bank’s international debt report released Tuesday. That represents about 26% of their gross national income, up from 22% in 2010. The figures aren’t adjusted for inflation.

“This is a grim outlook, both in the near term and the medium term," said World Bank President David Malpass in a press conference Tuesday.

But the debt load has eased slightly from 2020, when it reached 29% of gross national income at a time when the pandemic held down economic output even as countries borrowed heavily to fight the spread of Covid-19.

Debt expansion has been particularly stark in some countries. Sri Lanka’s external debt amounted to 69% of its gross national income at the end of last year, up from 39% in 2010. In Zambia, external debt rose to 125% of GNI in 2021, from 22% in 2010.

Increasingly, that debt is owed to private creditors rather than other countries or international institutions, the World Bank found. Roughly 61% of developing countries’ debt is owed to private creditors, up from 46% 2010.

Debt owed to private creditors can come with higher servicing costs, the report said. It can also be harder to negotiate debt-relief programs with the private sector than with other lenders in the event of a crisis.

A decade of low interest rates and a rise in Chinese lending boosted countries’ debt exposure. The Covid-19 pandemic forced governments to borrow even more in order to continue providing services at a time when output stalled and health spending grew. Now, many countries are having a hard time making payments.

It could get worse. World Bank officials say the rise in indebtedness could be a problem if the global economy tips into recession in the months ahead.

The International Monetary Fund expects global growth to slow to 2.7% in 2023, down from 3.2% in 2022 and 6% in 2021. Central banks around the world have been raising interest rates to fight inflation, making borrowing more expensive at a time when economic growth is slowing.

Russia’s war in Ukraine has also driven up food and energy costs.

Some of the world’s poorest countries could be most exposed. A World Bank grouping of 74 poorer countries could collectively owe more than $62 billion in debt service in 2022, up 35% from 2021, the report said.

Servicing that debt “will exhaust scarce fiscal resources needed for electricity, water, nutrition, health, education and climate action," Mr. Malpass said.

Countries with dollar-denominated debts could also be hurt by the strengthening dollar, making their debts more expensive to repay in local currencies.

Countries that borrowed in their own currency also face pressure. Much of that locally-denominated debt is owned by foreign creditors, who could be tempted to sell that debt in a recession. That could put pressure on countries’ exchange rates.

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