The World Bank noted that rising borrowing costs are creating a "surge" in the need for developing countries to stimulate their slowing economic growth. This comes as international bond sales from emerging market governments hit an unprecedented level of $47 billion in January, led by emerging economies with lower-risk debts such as Saudi Arabia, Mexico, and Romania. However, some of the higher-risk debt issuers have started turning to the markets by offering higher yields. Kenya, for instance, recently issued new international bonds with a yield exceeding ten percent, a rate that experts often consider unsustainable for borrowing.
Aihan Kose, Deputy Chief Economist at the World Bank, told Reuters during an interview in London on Tuesday that "when it comes to borrowing, there is a surge happening. There is a need for growth at a much faster pace," although he refrained from commenting on specific countries. He provided an example, saying, "If I have a mortgage loan with a ten percent interest rate, I would be concerned." Kose added that achieving a faster pace of growth, especially a real growth rate above the actual borrowing costs, may prove challenging.
The rising conflict in the Middle East poses another risk as it heightens concerns over tightening monetary policy and its impact on global trade. In 2020, the G20 launched what they called a "Common Framework" when the pandemic disrupted the financial situations of nations. The program aims to expedite and simplify the process of helping debt-laden countries regain their footing. However, the process has encountered delays, and countries like Zambia have remained in default for over three years.
