Global debt levels continue to hit new record highs. The Institute of International Finance (IIF) estimates that by the end of March 2018 global debt stocks had reached $247.2 trillion, having risen by nearly $25 trillion from a year earlier, and up from $168 trillion at the onset of the financial crisis.
Over the past five years, public debt of developing countries rose by 15 percentage points of GDP, from 36 per cent in 2013 to 51 per cent in 2018. While debt levels fell significantly in least developed countries (LDCs) following debt write-offs in the mid-2000s, they have been rising since 2012. Public debt reached 46 per cent of GDP in 2018 on average. This increase reflects adverse shocks and sluggish policy adjustment in some cases, and sustained expenditure increases in others. Data coverage and governance issues also contributed to debt surprises. Debt levels in small island developing States that are vulnerable to natural disasters remain high. Debt increases were also significant among countries in fragile and conflict-affected situations.
Many developing countries, including least developed countries (LDCs), have increasingly tapped international financial markets to raise resources.
The rise in debt-servicing costs in developing countries is an immediate concern, particularly in LDCs, not least because they face serious challenges in implementing the SDGs. Given that these economies are characterized by shallow domestic financial and banking systems, as well as limited access to international financial markets, their options to re-finance maturing debt obligations are limited. Debt service obligations compete directly with other public expenditure for available resources. Indeed, public debt service in LDCs increased from 3.4 per cent of GDP in 2015 to 4.3 per cent in 2017. Over the same period, public expenditure on health care and education, also as a share of GDP, has remained stable, albeit with a slight decline in 2017. Further increases in external debt-servicing costs may induce declines in government expenditure in these areas.
Many countries exceed threshold indicators jointly developed by the IMF and the World Bank for analyses of low-income-country debt sustainability. 40 per cent of least developed countries (LDCs) and other low-income countries were assessed as being at a high risk of or in debt distress according to the IMF-World Bank Debt Sustainability Analyses. Safety margins for countries at moderate risk of debt distress have also eroded.