EFFORTS to reduce debts should be implemented even among middle-income countries like the Philippines as external debt levels have significantly risen during and after the pandemic, according to the World Bank.
The World Bank’s new International Debt Report placed the country’s external debt at $106.428 billion as of 2021. This is 8.05 percent higher than the $98.494 billion posted in 2020 and 62.858 percent more than the $65.35 billion posted in 2010.
The country’s long-term debts reached $87.425 billion while the country’s short-term external debt amounted to $15.09 billion in 2021.
“Increases in the size of debt and debt payments underscore the need to create a more effective debt reduction process for low- and middle-income countries in debt distress,” the World Bank report stated.
“Given the changes in debt composition, creating such a process has become challenging and requires cooperation from all major creditors. The growth of debt also underscores the need for greater debt transparency,” the report added.
In 2022, the World Bank said global growth is slowing sharply. Amid one of the most internationally synchronous episodes of monetary and fiscal policy tightening the world has seen in 50 years, the risk of a global recession next year has been rising.
“Currency depreciations have made matters worse for many developing countries whose debt is denominated in US dollars. The 2021 debt-to-GNI improvement, as a result, is likely temporary,” the World Bank said.
In an Asian Development Bank Institute (ADBI) Blog, John Beirne and Pradeep Panthi warned that the depreciation of the currencies of emerging market economies (EMEs) could worsen external debt levels.
Beirne is vice-chair of research and a senior research fellow at ADBI and Pradeep Panthi is a research associate.
The ADBI tandem said over 80 percent of external debt is denominated in US dollars. In this context, it is notable that compared to other regions, emerging and developing Asia has a lower share of external debt to GDP overall.
The Philippine peso, the researchers noted, has depreciated by 11.7 percent against the US dollar. This is the largest depreciation among the country’s peers in the ASEAN-5 (the four others being Singapore, Thailand, Indonesia and Malaysia).
“Economies that have high levels of external debt denominated in US dollars are particularly exposed, with debt sustainability threatened by surges in the local currency value of the debt and rising debt servicing costs,” the ADBI researchers said.
“Therefore, while emerging Asia overall remains exposed to US dollar appreciation in terms of external debt risks, it is less exposed than other regions,” they added.
Meanwhile, the World Bank said at the end of 2021, the external debt of these economies totaled $9 trillion, more than double the amount a decade ago. During the same period, the total external debt of IDA countries, meanwhile, nearly tripled to $1 trillion.
On edge of debt crises
Rising interest rates and slowing global growth risk pushing a large number of countries into debt crises. About 60 percent of the poorest countries are already at high risk of debt distress or already in distress.
“The debt crisis facing developing countries has intensified,” said World Bank Group President David Malpass. “A comprehensive approach is needed to reduce debt, increase transparency, and facilitate swifter restructuring—so countries can focus on spending that supports growth and reduces poverty. Without it, many countries and their governments face a fiscal crisis and political instability, with millions of people falling into poverty.”
At the end of 2021, IDA-eligible countries’ debt-service payments on long-term public and publicly guaranteed external debt totaled $46.2 billion—equivalent to 10.3 percent of their exports of goods and services and 1.8 percent of their gross national income (GNI), according to the report.
Those percentages were up significantly from 2010, when they stood at 3.2 percent and 0.7 percent respectively. In 2022, IDA countries’ debt-service payments on their public and publicly guaranteed debt are projected to rise by 35 percent to more than $62 billion, one of the highest annual increases of the past two decades.
The World Bank also said China is expected to account for 66 percent of the debt-service payments to be made by IDA countries on their official bilateral debt.
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