Developing countries spent about half a trillion dollars to service their external public and government-guaranteed debt in 2022, drawing funds from the critical sectors of health, education and addressing climate change needs, putting poorer countries at an increasing risk of “run into a debt crisis”, announced today the The World Bank.

In the latest International Debt Report, the bank reports that debt service payments including principal and interest increased by 5% hitting a record $443.5 billion from a year earlier amid the biggest jump in interest rates in four decades. It also says payments could jump more than 10% in 2023-2024.

The 75 poorest countries were hardest hit, according to the report, which has already been carried out for the last 50 years. Payments to service their external public debt reached a record 88.9 billion in 2022 and will jump by 40% in 2023-2024. Their interest payments alone have quadrupled since 2012 to $23.6 billion, the report said.

“This is the decade of settling accounts,” World Bank chief economist Intermit Jill told Reuters in an interview. “Record debt levels and high interest rates have pushed many countries on the path to crisis,” he said, warning that continued high interest rates could push more developing countries into debt distress.

Jill said he was closely monitoring discussions taking place in Ethiopia with bondholders after talks broke down over how long the maturity and interest rate margin could be extended to repay the country’s only $1 billion international bond due in December 2024.

“Ethiopia is like a canary in a coal mine,” he said. “It is the biggest country that will go bankrupt. This is something interesting. It is one of the five largest in sub-Saharan Africa”

Ethiopia is sliding toward bankruptcy after it said it would not pay its $33 million bond coupon until Monday.

Gill appealed for ‘swift and concerted action’ by debtor countries, private and official creditors, and multilateral financial institutions to improve transparency, develop better debt sustainability tools and speed up debt restructurings.

African countries are facing “another lost decade,” Gill told Reuters, noting that they have not seen an average increase in per capita income since 2014.

In the foreword to the report, Gill notes that one in four developing countries is now priced out of international capital markets and that there have been 18 sovereign defaults in 10 countries in the past three years, more than in the past two decades combined.

Debt service payments are eating up an ever-larger share of export earnings, with some countries now “one step away from a debt crisis,” Jill writes, noting that about 60 percent of low-income countries are already in a difficult debt situation or at risk of it.

Domestic debt levels are also very high in countries such as Argentina and Pakistan, increasing risks. Countries that deferred principal and interest payments under the Group of 20 Debt Service Suspension Initiative (DSSI) adopted during the COVID pandemic have now faced additional costs now that those payments have become due, the bank says , although exact figures won’t be released until 2024.

The report notes that private capital has largely withdrawn from developing countries, favoring higher interest rates in advanced economies. Private lenders withdrew $185 million more in principal repayments than they disbursed in loans, the first time since 2015.

The report shows a net outflow of $127.1 billion from low- and middle-income countries to bondholders, compared to an average inflow of $202 billion from 2019-2021.

The World Bank and other multilateral lenders have helped fill the gap by providing a record $115 billion in new financing to developing countries in 2022, the report said.