The International Monetary Fund (IMF) has reported that the combined debt of Low-Income Developing Countries (LIDCs) amounts to 88% of their respective Gross Domestic Product (GDP).
This was revealed in the institution’s recently published 2023 Global Debt Monitor report, titled "Global Debt Is Returning to its Rising Trend," which provides insights into the state of global debt.
According to the global financial institution, although global debt decreased by 10%, or approximately $200 billion, and currently stands at 238% of the global Gross Domestic Product (GDP), the debt burden for low-income developing countries increased by 0.5%. It now constitutes 88% of their GDP.
“Debt in low-income developing countries (LIDCs) have not fallen. Total debt increased by about 0.5% of GDP to 88% of GDP in 2022. This was driven by a similar increase in private debt, which reached a new high of 39% of GDP in 2022,” the report read.
The Fund highlighted that in low-income developing countries, the debt burden has been compounded by exchange rate depreciation and the necessity to fund the cost-of-living crisis triggered by the pandemic and other global geopolitical events.
Given the escalating debt challenges, the IMF provides guidance to governments worldwide, urging them to take prompt and resolute measures to reduce debt vulnerabilities and reverse long-term debt trends.
Developing countries are advised to increase tax collection capacity.
“For low-income developing countries, improving the capacity to collect additional tax revenues is key, as we discussed in our April Fiscal Monitor. For those with unsustainable debt, a comprehensive approach that encompasses fiscal discipline, as well as debt restructuring under the Group of Twenty Common Framework—the multilateral mechanism for forgiving and restructuring sovereign debt—when applicable, is also needed, as noted in the April World Economic Outlook,” the report stated.
Reducing debt burdens will create fiscal space and allow new investments, helping foster economic growth in coming years. And reforms to labour and product markets that boost potential output at the national level would support that goal.
Also, international cooperation on taxation, including carbon taxation, could further alleviate pressures on public financing.
On the state of global debt, the institution observed that global debt currently amounts to $235 trillion, representing a 20% decrease over the past two years. However, global debt still accounts for approximately 92% of the global Gross Domestic Product (GDP), marking a 3.6% decrease over the past year.
The institution also issued a cautionary note, suggesting that global debt may resume an upward trajectory in the medium term. The fund stated thus,
“After three years of the “rollercoaster,” global debt is likely to rise again over the medium-term, under business-as-usual. The macroeconomic conditions that provided great relief to debt ratios in 2021-2022 will not last.”
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