Interest rates on new developing country borrowing increased by an average of 2.2 percentage points over the course of 2018. Yields on low- and lower-middle income country debt, calculated by Jubilee Debt Campaign, increased by seven times more than borrowing for the US government over the course of the year.
Yields measure the likely interest rate for governments on new loans. There are 25 low and lower-middle income country governments with publicly traded international bonds, and so yields. Across these 25, the average yield has increased from 5.8 per cent in January 2018 to 8 per cent in December. In contrast, yields on 10-year US government debt have increased from 2.4 per cent in January 2018 to 2.7 per cent, an increase of 0.3 percentage points.
Commodity prices have also generally fallen over 2018. Commodities are the main exports for many impoverished countries so a key determinant of income from abroad which is needed to pay international debts. The Bloomberg commodity index fell 10 per cent over 2018 and is now at the lowest level since April 2016. In the last year the copper price has fallen by 20 per cent, coffee by 22 per cent and zinc by 26 per cent.
Tim Jones, Economist at the Jubilee Debt Campaign said: “Borrowing costs for impoverished country governments continue to rise, while commodity prices are falling again. Urgent action is needed to prevent this turning into a full-blown debt crisis. This includes rules to make all loans transparent to help ensure when money is borrowed, it is spent well. And in response to debt crises the IMF should require debt restructurings, rather than bailing out reckless lenders.”
Within low and lower-middle income countries, yields have increased by more for African countries, by 2.5 percentage points, and now average 8.6 per cent. In contrast, in Asia they have risen by 1.3 percentage points, and now average 6.6 per cent.
Bonds make-up 23 per cent of the external debt of low and lower-middle income country governments. A further 30 per cent of the debt is owed in other ways to private lenders. Yields are a guide to the interest rate on all forms of private lending. Twenty five per cent of debt is owed to multilateral institutions such as the World Bank, and 22 per cent to other governments.
Currencies have also tended to fall against the dollar in 2018. External debt tends to be owed in dollars or other foreign currencies, so exchange rate falls push up the real value of both debt and interest payments. The largest falls have been the Angolan kwanza (46 per cent), Pakistani rupee (21 per cent), and Tunisian dinar and Zambian kwacha (both 16 per cent). The average currency fall across the 25 countries is eight per cent.
* Jubilee Debt Campaign https://jubileedebt.org.uk/
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