ISLAMABAD: The combined external debt stocks of low-and middle-income countries rose to $8.7 trillion at end-2020, driven by an increase in long-term debt.
The total external debt stock of low- and middle-income countries rose on average 5.3 percent in 2020 to $8.7 trillion.
The rate of accumulation in 2020 was comparable to that in 2018 and 2019, but below the annual average increase of 8 percent. The World Bank has pointed out this stunning development in its latest report “International Debt Statistics 2022” released today.
This reflects a much slower accumulation of external private non-guaranteed debt stocks, which averaged 3.3 percent per annum in 2018–2020 compared to 8.6 percent each year from 2011 to 2017.
The 2020 increase in external debt stocks resulted from net debt inflows of $435 billion and valuation changes in year-on-year exchange rates in relation to the U.S. dollar (about half the external debt of low- and middle-income countries is denominated in currencies other than the U.S. dollar).
Long-term external debt rose 7 percent to $6.5 trillion, equivalent to 75 percent of the total external debt stock, driven by a 10 percent rise in long-term external public and publicly guaranteed debt, including obligations to the IMF, and a much smaller 3 percent increase in long-term non-guaranteed external debt of private sector entities. The short-term debt stock was unchanged at $2.2 trillion at end-2020.
China accounted for over a quarter of the end-2020 external debt stock of low- and middle-income countries. China’s external debt stock rose 11 percent in 2020 to $2.3 trillion, propelled by an 18 percent increase in long-term debt. The long-term external debt stock of China’s public sector borrowers increased by 30 percent to $415 billion at end-2020 while the external debt stock of private Chinese entities, without any government guarantee, rose 18 percent from the end-2019 level to $688
External short-term debt was $1.2 trillion at end-2020 and only marginally (2.5 percent) higher than the previous end-year level, reflecting the slowdown in trade volumes induced by the global pandemic. However, short-term debt remained by far the most significant component of China’s total external debt stock, 53 percent at end-2020, down slightly from 57 percent at end-2019.
China aside, the external debt stocks in 2020 were characterized by a marked divergence between major borrowers and other low- and middle-income countries. The combined external debt stock of low and middle-income countries, excluding China, rose on average 3.4 percent in 2020 to $6.3 trillion of which the nine major borrowers accounted for 56 percent. Their combined external debt stock was $3.5 trillion at end-2020, relatively unchanged from the prior year. In contrast, the external debt stock of other low- and middle-income countries rose, on average, 9.5 percent to $2.8 trillion.
Reasons for the evolution of major borrowers’ external debt stocks in 2020 were divergent, but a common factor was contraction in non-resident holdings of domestically issued bonds, including in India, Indonesia, and the Russian Federation.
It was also one of the reasons for the 2.5 percent fall in South Africa’s long-term public and publicly guaranteed external debt in 2020 in addition to the 19 percent contraction in short-term debt and 21 percent fall in long-term non-guaranteed debt of the private sector.