Each year, the world generates trillions of dollars in debt. To low and middle-income countries, these monetary flows are a critical source of credit to finance and complete various projects to develop and diversify their economies. In 2019 alone, the 120 low and middle-income countries around the globe generated $8.1 trillion of external debt. Every year, the World Bank collects data from these low and middle-income countries and publishes them in “International Debt Statistics.” In 2020, the World Bank – reacting to global financial shocks from COVID-19 and emphasizing debt transparency – for the first time released individual creditor countries within “International Debt Statistics.” The interactive map below visualizes these newly released creditor country breakdowns. Previously, such data was only available at a generalized “creditor region” level. Such a release provides a tremendous level of granularity, which economic and public policy analysts can use to examine relationships between the 120 low and middle-income countries of the world.
As new creditors emerge around the world, these stocks of external debt will continue to rise – as they have in the last decade. For example, China – itself a middle-income country – has greatly increased its lending to low and middle-income countries in the last 20 years. The interactive charts and maps in this report examine how the creditor profiles of two regions – Southeast Asia and Sub-Saharan Africa – have changed in the last 20 years.
Relationship between debt distress and exports
The interactive map shows a generated “debt distress rating” for a selection of low and middle-income countries by year. The “debt distress rating” is the relationship between a country’s level of indebtedness and its diversity of export categories. Specifically, this rating compares the ratio at which a country uses export revenues to pay off its public external debt. Typically, if a country experiences declining export revenues and increasing levels of external debt, it is headed towards an unsustainable debt profile. In addition, some scholars assert that commodity-dependent economies over-borrow in times of high export revenues, leading to burdensome external debt in later years. For Sub-Saharan Africa in 2011, a majority of the countries are in the Low Distress category. This roughly corresponds to an all-time high in commodity prices in 2011. However, in 2016, the situation changes, in part from a bottoming-out of commodity prices that year. Countries such as Sudan, Ethiopia and Mozambique fall into the High Distress category, where they remain as of 2019. Governments will typically use a fraction of these export revenues to pay off loans owed to other countries. The bar chart on the bottom section of the dashboard shows a country’s history of export diversification for the last 20 years. As the next section shows, creditors to Sub-Saharan Africa have drastically changed in the last 20 years, as debtors in the region seek new financing partners.
Japan remains preferred lender in Southeast Asia
Southeast Asia consists of 12 countries and a population of 655 million. However, as of 2020, only one country in the region, Indonesia, is a member of the Group of 20 – larger markets that represent 80% of the international economy. In 2019, the region of Southeast Asia accounted for almost $435 billion of public, external debt owed to the rest of the world. To illustrate the concept of public external debt: suppose the government of the Philippines wants to upgrade public transportation in metropolitan Manila. To finance such a project, they could use a combination of domestic funds – such as transportation taxes – as well as through loans from overseas. If the Philippine government officially guarantees to pay such an overseas loan, it becomes public external debt. As seen in the chart, countries in Southeast Asia have traditionally borrowed money from Japan – which lent a record high $83 billion to the region in 2011. However, it is interesting to observe the emergence of China as the second highest lender in the region. In 1999, after lending a relatively low amount of $1.3 billion in public debt, China has rapidly emerged as the second highest lender in 2019 – with an impressive $17.5 billion to the region. However, as of 2019, Japan remains the region’s top creditor – shelling out $51 billion to Southeast Asian governments and public corporations.
Chinese lending to Sub-Saharan Africa
Sub-Saharan Africa is an incredibly diverse region, both geographically and culturally. Combined, the region’s 46 countries have a massive population and quickly growing economies. According to the United Nations, Sub-Saharan Africa’s population was approximately 1.1 billion people in 2019. In 2019, the region of Sub-Saharan Africa borrowed almost $599 billion in public external debt. In terms of top creditors since 1999, the region traditionally borrowed from France as an official creditor country. This changed after 2009, when China became the top creditor to the region, a position which it still holds as of 2019. In terms of lending, China has grown from lending a relatively low $1.5 billion in 1999, to almost $67 billion in 2019. Looking at the chart, China is by far the largest creditor to Sub-Saharan Africa, followed by the United States with $26 billion.
Newly released creditor breakdown
The 2019 “International Debt Statistics” report includes specific details on creditor countries. Previously, the World Bank kept such data limited to creditor regions. However, due to the renewed push for debt transparency – as well as global financial shocks from COVID-19 – such data is being released for the very first time. The above map visualizes the connections that select low and middle-income countries have to their creditor countries, by representing these debt flows. Further, it uses color and size to represent the levels of such public external debt.
Conclusion
Resulting from both the COVID-19 pandemic and an emphasis on increased debt transparency, the World Bank has released a granular dataset of external debt statistics. For the first time, the visualizations above reveal a specific creditor country breakdown for 120 low and middle-income countries around the world. It is interesting to note how creditor compositions have changed over time. For example, China as a creditor has largely displaced other countries as the preferred lender in Sub-Saharan Africa. In other regions, such as South East Asia, Japan remains the preferred lender, with China making significant gains and becoming the second largest regional lender. Future releases of such detailed data will enable academics and researchers to quantify the medium to long-term effects of the COVID-19 pandemic on external debt around the world.
Editor’s note: the author is a consultant at the World Bank.
Photo by Jason Leung
