Tanzania and peers face rising debt costs, echoing global challenges

Dar es Salaam. A new World Bank report paints a concerning picture for developing countries, including Tanzania, grappling with escalating debt servicing burdens.

According to the report, Tanzania and its peers spent a staggering $443.5 billion servicing external debt in 2022, a 5 percent increase compared to the previous year.

This trend is largely driven by rising global interest rates, squeezing precious resources away from critical sectors like healthcare, education, and the environment.

The World Bank’s report highlights how precious resources are being diverted away from critical sectors like health, education, and the environment to service mounting debt obligations.

With global interest rates on the rise, the burden is expected to worsen further. The report predicts a potential 39 percent increase in debt-servicing costs for the 24 poorest countries by 2024.

While Tanzania, categorized as a middle-income country by the World Bank, is not directly included in this projection, it remains vulnerable to the escalating costs. As an eligible borrower from the World Bank’s International Development Association (IDA), Tanzania is not immune to the global debt crisis.

In 2022, IDA-eligible countries, including Tanzania, collectively disbursed a record $88.9 billion in debt service payments.

“Record debt levels and high interest rates have set many countries on a path to crisis,” warned Indermit Gill, World Bank Senior Vice President. “Every quarter that interest rates stay high, more developing countries face the difficult choice of servicing debt or investing in their people.”

Mr. Gill emphasised the urgent need for coordinated action by governments, creditors, and multilateral institutions.

He called for increased transparency, improved debt sustainability tools, and faster restructuring arrangements to navigate this complex situation.

The rising global debt wave is not only impacting developing countries. Surging interest rates have heightened debt vulnerabilities across all developing nations, leading to 18 sovereign defaults in 10 countries within the past three years alone – surpassing the total defaults witnessed in the previous two decades.

 The World Bank estimates that approximately 60 percent of low-income countries are currently at high risk of debt distress or already in it.

Furthermore, the escalating debt costs are coinciding with a decline in new financing options for developing countries.

In 2022, new external loan commitments to these countries dropped by 23 percent to $371 billion, marking the lowest level in a decade. Private creditors, in particular, have largely withdrawn from developing markets, further exacerbating the situation.