Low-, middle-income countries to experience acute impact due to 2023 economic slowdown
The path to recovery in these countries will be fraught with challenges as they navigate a complex landscape of rising borrowing costs, weaker external demand, and volatile exchange rates.
With these vulnerabilities in mind, experts are urging international financial institutions and governments to focus on addressing these risks through coordinated action and structural reforms, according to the report. It added that strengthening fiscal frameworks, improving debt management, and fostering more resilient economic structures will be crucial to ensuring the long-term stability and growth of LMICs.
The global financial landscape for the LMICs showed significant shifts in 2022, with growing concern over external debt burdens, declining capital inflows, and an uncertain macroeconomic environment.
External debt stock decline in 2022
For the first time since 2015, the external debt stock of LMICs fell in 2022, decreasing by 3.4 percent, from $9.3 trillion in 2021 to $9 trillion. Two main factors caused this decline: negative debt flows, where loan disbursements fell short of principal repayments, and the appreciation of the US dollar against other major currencies, which impacted debt denominated in those currencies. Long-term and short-term debt stocks saw similar declines, with the decrease in long-term debt primarily attributed to a five percent reduction in obligations to private creditors.
Egypt standing
The report showed that Egypt’s overall debt reached its highest since 2012, recording $163.1 billion, with the long-term debt accounting for the lion's share of this amount with $111.1 billion.
The data also indicated that 37 percent of Egypt’s debt in 2022 was secured from multilateral institutions, including the International Monetary Fund (IMF) (14 percent), the World Bank (nine percent), and other institutions (14 percent). Meanwhile, the gulf countries' deposits at the Central Bank of Egypt (CBE) acquire 27 percent of Egypt’s overall debt, with five percent being acquired by Saudi Arabia, UAE, and Kuwait for each and 12 percent by other bilateral parties.
Negative debt flows and rising outflows
In a significant shift, the total net debt flows to LMICs turned negative in 2022, resulting in outflows of $185 billion, starkly contrasting the $556 billion inflows recorded in 2021. Short- and long-term debt flows saw declines, with long-term debt flows reaching a record low and turning negative for the first time since the early 2000s. The outflow was mainly driven by a $189 billion reduction in inflows from private creditors, as sovereign bond issuances and lending from commercial banks sharply declined due to tightening monetary policies in advanced economies. The rising borrowing costs, driven by inflation control measures, led to a decreased appetite for debt in LMICs, contributing to net outflows of $127.1 billion to bondholders in 2022.