WORKING PAPER 3: THE RESISTIBLE RISE OF EXTERNAL DEBT

Published on: 14/03/23

By: Brendan Harnoys-Vannier,  Daniel Cohen,

THE RESISTIBLE RISE OF EXTERNAL DEBT IN THE GLOBAL SOUTH (2011-2021)

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Working Paper 3
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The recent era of low interest rates and ample liquidity caused a large increase in external indebtedness throughout the Global South. This note documents both the magnitude and the rising diversity of the debt involved, at a time when markets are shutting down. We build upon the latest World Bank International Debt Statistics, recategorizing countries based on their vulnerability before the Covid crisis hit and their level of development.

The following messages came out:

  • Total external debt of Developing Economies and Emerging Market countries (without China) reached new heights, totaling an overall $6388 billion in 2021, an increase of 64,6% over the last decade. In 2021, out of a total of $2936 bn of Public and Publicly-Guaranted (PPG) Debt, $1746 billion was owed to private creditors, out of which, $1320 bn to private bondholders (45% of the total against 32% in 2011).
  • In DSSI countries, China and private creditors have more than doubled their share, and respectively reached 21% and 23% of the total against 12% and 8% in 2011. Between 2011 and 2021, China and private creditors account for 58% of the increase in indebtedness. 
  • Non-DSSI LMICs saw the most dramatic increase of debt owed to private creditors. Between 2011 and 2021, private creditors explain 78% of PPG debt accumulation of LMICs, representing 53% of the total in 2021. Bondholders represented 70% of their private creditors in 2011 against 84% by 2021.
  • For non-DSSI UMICs, private creditors retain the majority of loans through time.
  • For eligible countries, the DSSI initiative helped ensure that net flows and net transfers remain significantly positive.
  •  For LMICs, the outcome is more uneven. Although aggregate flows remain positive, a number of LMICs are in negative net transfer territory.
  • The UMIC group experienced a steep fall in net transfers between 2011 and 2021, from +4,2% of PPG Debt Stock in 2011 to -2,8% in 2021. And all the more so that they rely on private capital.
  • The fact that net transfers have turned negative for a significant number of LMICs and UMICs, highlights that it has become imperative for these countries to find new sources of finance.