The lowest financing levels since the Global Financial Crisis

Global net financial transfers to developing countries have fallen to their lowest level since the Global Financial Crisis. This means that debt service repayments to official and private lenders have surpassed external inflows to governments (including new lending and official development assistance).

New analysis by The ONE Campaign shows that:

• Net financial transfers to developing countries have fallen from their peak of US$225 billion in 2014 to US$51 billion in 2022 (the most recent year for which data is available).
• New projections from ONE show that flows will fall by over US$100 billion in the next two years. That means US$50 billion will flow out of developing countries in 2024. 
• Upper-middle-income countries maintained negative net flows for the second consecutive year in 2022.
• More than one in five emerging markets and developing countries paid more to service their debt in 2022 than they received in external financing. This could rise to more than one in three by 2025.¹
• Aid donors are celebrating new statistics showing record global aid numbers. Yet they spent nearly one in five of their aid dollars at home,² and aid to Africa has flatlined.

A confluence of crises have put enormous pressure on country budgets as governments pay more to service record levels of debt. That’s a result of the pandemic, the war in Ukraine, and rising interest rates. 

Meanwhile, new sources of finance are drying up. Countries are losing access to financial markets, China has grown more risk averse, and traditional donors are spending more of their aid at home. 

This squeeze is occurring when poverty and hunger are on the rise for the first time in a generation and countries need to make transformative investments to address pressing climate and development needs. Those needs are estimated at US$1 trillion per year in external financing by 2030.

The good news is that practical and innovative solutions exist to scale financing to meet the demand. What’s missing – and urgently needed – is political action to bring the global economy back into balance.  

As G20 Finance Ministers meet for the Spring Meetings of the IMF and World Bank, ONE is calling for three things:

1. Multilateral development bank reform: Reforms could unlock up to US$1 trillion in low cost lending by: 

• Better leveraging existing balance sheets and incorporating callable capital (a guarantee) into the risk assessments of these banks. 
• Approving the use of IMF Special Drawing Rights as hybrid capital for multilateral development banks to leverage more low-cost finance. 

2. Increased investments in low-income countries: By tripling the size of the World Bank’s low-income country fund (IDA), and increasing donor contributions by 25% to US$30 billion.

3. Expedited debt relief: Reforming the G20’s Common Framework, which has proved too costly and too slow for countries in debt distress, would enable additional countries to seek relief.

What just happened?

From the turn of the century, net flows to developing countries dramatically increased. Investors seized opportunities in emerging markets. G7 donors scaled up aid. The Paris Club cancelled illegitimate debt through the Highly Indebted Poor Country and the Multilateral Debt Relief Initiatives.

Meanwhile, developing countries took advantage of historically low interest rates and took on new debt, including from China and private creditors. They sought to address massive infrastructure and development needs as their populations grew rapidly. 

The pandemic, Russia’s invasion of Ukraine, and other geopolitical challenges, however, put an end to cheap borrowing. Interest rates and energy costs have soared, local currencies have lost value against the dollar, and investors are withdrawing their money from developing countries.  

In 2022, 26 countries with a total population of 1.3 billion people – including Angola, Brazil, Pakistan, and Vietnam – paid a total of US$48 billion more to service their external debts than they received in new external finance. That means they were already in negative net transfers. Unless financing flows increase, this number could increase to 44 countries in 2025, paying US$102 billion in negative net transfers.

The problem of expensive debt

Developing country debt levels have more than doubled since 2009, and the cost of servicing that debt has skyrocketed. 

Developing countries (excluding China, Russia, and Ukraine) paid US$294 billion in debt service in 2022. That figure is expected to balloon to US$358 billion in 2024. Lending from China and private bondholders and banks typically carries higher interest rates than public debt from donor countries and multilateral development banks. In recent years, those rates have been four times higher than the average loan from the World Bank’s International Bank for Reconstruction and Development.

Developing countries tend to have lower debt-to-GDP levels than much of the G7. But because they are considered more risky, the cost of servicing their debt tends to be more expensive.

Fickle investment 

Inflows to developing countries are on the decline. Some multilateral development banks have made considerable efforts to increase their funding since the start of the pandemic. But other sources of finance are in decline. 

• Chinese lending to Africa dropped 70% from a peak of US$20.9 billion in 2016 to US$6.3 billion in 2022 as countries struggled to repay debt. 
• Private lending flows to developing countries have halved from a high of US$257 billion in 2017 to US$126 billion in 2022. Higher interest rates are keeping many countries from accessing new private finance. Meanwhile, banking sector challenges are detering investment in riskier markets. 

Fake aid

Foreign aid, or official development assistance, is being diverted from the most vulnerable countries toward conflicts and humanitarian crises elsewhere. 

In 2022, one-quarter of all official aid went to Ukraine and to supporting refugees in donor countries. That contributed to a decline in aid to African and Least Developed Countries. Although we don’t yet have the full picture for 2023 aid levels, the trend appears to be continuing.

Donors can count the costs of hosting refugees – and other administrative costs – as aid. Nearly one in every five aid dollars (19%) never left donor countries in 2023. Seven donors last year spent more than one-quarter of their total aid on refugees at home. The UK spent nearly one-third of its 2023 foreign aid budget….in the UK. 

Hosting refugees is a good thing. Taking money from vulnerable countries to do it isn’t. 

On top of this troubling trend, it has become fashionable for donors to cut overall aid. Already in 2024, the EU, France, Germany, and the US have announced aid cuts totalling nearly US$9 billion. 

Why this matters

These trends add up to a perfect storm for countries hit by a cost of living crisis, climate shocks, and the ongoing challenge of extreme poverty. 

• Higher debt payments lead to lower public spending on health, education, and social protection. This means that countries have less fiscal space to support people who are struggling. 
• Extreme poverty and hunger are increasing for the first time in a generation. Lack of opportunities for rapidly growing youth populations increases the risks of conflict and migration. 
• The downturn in investment and increased cost of capital will slow the urgent need to transition energy systems and build resilience to climate shocks. This is a massive missed opportunity: Africa holds climate solutions for the world in the form of renewable energy potential, critical minerals, and carbon sinks. 
• Shifting geopolitics means that countries in the Global South have more options on who to partner with – including China, Russia, and countries in the Middle East. The credibility and influence of G7 countries have steeply declined in recent years. If the troubling trend in financial transfers detailed in this brief continues, it will further weaken their credibility.

What G20 Finance Ministers should do about it 

Developing countries need transformational investments to build climate resilience, transform their economies, and respond to crises. G20 Finance Ministers should take decisions now to unlock this finance and ensure it is deployed quickly and effectively. 

1. Reform the multilateral development banks. G20 Finance Ministers must instruct the World Bank to squeeze more from its existing capital to triple financing by 2030. That includes giving value to callable capital in risk assessments, mobilising private capital, and supporting a general capital increase. They should also support hybrid capital proposals to leverage unused IMF Special Drawing Rights (a reserve asset). The IMF Executive Board should approve the use of SDRs as hybrid capital for channelling through multilateral development banks. 

2. Invest in low-income countries. The World Bank’s International Development Association is the world’s largest source of low or no cost (“concessional”) finance for the world’s poorest countries. It has provided more than US$500 billion in grants and loans since 1960 – a lifeline for countries that don’t have access to other sources of finance. African finance ministers have called for a tripling of IDA’s size by 2030. Donors must increase their contributions by 25% (to US$30 billion) in this year’s replenishment to meet that ambition. 

3. Speed up debt relief. The G20’s Common Framework has proved too costly and too slow for countries in debt distress, dissuading additional countries from seeking relief. Creditors should provide an immediate debt standstill for countries upon application, expand eligibility to middle-income countries, and reform the Debt Sustainability Framework to be fit for purpose. That would better reflect changes in the global environment, debt composition, and financing needs. Amending private legislation in New York and the UK could ensure that private creditors participate fairly in negotiations and restructurings. 

Methodology and additional resources

This notebook contains a detailed overview of our methodology and data. It covers how we have used data from the World Bank International Debt Statistics (IDS) and the OECD Creditor Reporting System (CRS) databases to calculate and project net flows.

For replication code, including access to raw data and the data that powers the different visualisations, please visit this report’s GitHub repository.

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 ^[1] 26 countries out of 118 emerging market and developing countries with available data on outflows – excluding Russia, China and Ukraine – are already in negative net transfers. This could rise to 44 countries in 2025. China, Russia, and Ukraine are excluded given the significant resources flowing to and from these countries related to conflict and geopolitics. _{[back to text↑]}

^[2] 19% of aid is spent at home. This includes in-donor refugee costs and administrative costs spent by donors in their own country. Student costs spent at home are not included in preliminary statistics. _{[back to text↑]}