- Countries with high debt payments all hit with tariffs
- No benefit from falling price of dollar
- Borrowing costs increasing
- Largest impact will be global downturn hitting export revenues
***Updated data on 14 April***
The US’s imposition of tariffs on imports from across the world has hit financial markets. The move is likely to exacerbate the debt crisis affecting many lower-income countries.
Of the 20 lower-income countries with the highest external debt payments, all are being hit with tariffs of at least 10%. While they are paused for now, higher tariffs could still hit Laos (48%), Sri Lanka (44%) and Angola (32%).
Paying external debts – those owed to people elsewhere in the world – requires earning money from the rest of the world, usually through exports. Tariffs on exports to the largest economy in the world will directly hit countries already suffering from high debt burdens, leading to further contractions of government spending and investment in the economy, as foreign currency earnings fall.
One ameliorating factor could be the fall in the value of the US dollar as most external debts are owed in dollars. It has been widely reported that the dollar has been falling in value against other major currencies, which would lower the relative cost of external debt payments. However, for the 20 countries with the highest external debt payments, on average their currencies have barely changed against the dollar. The falling dollar is being matched by falls in debtor country currencies.
In fact, the detail is more worrying than this. Several African countries have currencies effectively tied to the Euro, so have seen the relative size of any dollar-owed debts fall in value. But these countries tend to owe many of their debts in Euros. Some countries maintain some kind of peg against the dollar, using up foreign exchange reserves to prevent their currencies falling in value, and others may have been doing this to protect their currencies in recent days. Some currencies have fallen in value against the dollar by around 1-2%, such as the Kenyan schilling and Egyptian pound, despite the dollar also falling in value, while the Nigerian naira has fallen 4%.
The direct trade shock and changes in currencies are not the only impact on countries with high external debts. Another is on the interest rate on future borrowing. The yield on a type of debt owed to private lenders called a bond indicates the interest rate such lenders would charge if a government were to borrow more from them now. For the 20 countries yields have increased by over 1 percentage point in the last week, to an average of 11%. Borrowing costs were already high and are going higher – whether through bonds or less transparent forms of loans from banks.
Many of the countries with the highest debts were already effectively unable to borrow more from private lenders anyway. Instead, lenders such as the IMF and World Bank are lending more money, enabling the high interest to private lenders to keep being paid. The IMF have justified this by saying the debt crisis is a ‘liquidity’ problem. Their expectation is if they can keep debts being paid now, interest rates will fall, and debtors will be more able to pay in the future. Instead, interest rates are increasing, and the IMF and World Bank are conducting a mass bailout of private lender profits, while enabling the debt crisis to continue.
But the largest impact of rising tariffs might not be directly on exports, or changes in currencies, or bond yields, but the wider global economic impact. Many of the countries with the highest debt payments are dependent on commodities – raw materials – for their exports. The prices for commodities are notoriously volatile, rising in periods of global economic boom, then falling rapidly during downturns. The change in commodity prices often triggers intensified debt problems.
The oil price is down 12% since teh start of April. Oil is a key export for many of the countries with high external debts, including Angola, Senegal, Republic of Congo, Cameroon and Nigeria. There are no daily global prices for many key exports of countries with high debts (from textiles to tea, phosphates to flowers). The copper price – often interpreted as a guide to other metal prices and general demand for raw materials – is down 10%.
If tariffs are imposed, and a global economic downturn ensues, countries dependent on commodity exports will feel the impact the most. For those with already high external debt payments the response to the fall in foreign exchange will be to either further contract government spending, or stop paying and seek debt relief. As Indermit Gill, Chief Economist of the World Bank said in December 2024 before any of the events of this week were known:
“It’s time to face the reality: the poorest countries facing debt distress need debt relief if they are to have a shot at lasting prosperity… Sovereign borrowers deserve at least some of the protections that are routinely afforded to debt-strapped businesses and individuals under national bankruptcy laws. Private creditors that make risky, high-interest loans to poor countries ought to bear a fair share of the cost when the bet goes bad.”
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Table of data for 20 low- and lower-middle income countries with the highest average external debt payments (2023-2025)
| Country | Average government external debt payments, % of revenue, 2023-2025 | Proposed new US tariffs | Currency change against US dollar since end-March | Yield on external foreign currency long-bonds (14 April) | Change in yield on bonds since end-March |
|---|---|---|---|---|---|
| Angola | 63.1 | 32% | Fixed | 14.0% | +2% |
| Laos | 49.5 | 48% | -1% | ||
| Pakistan | 36.3 | 29% | No change | 12.6% | +1.5% |
| Bhutan | 34.7 | 10% | -2% | ||
| Egypt | 34.1 | 10% | -1% | 10.8% | +0.3% |
| Tunisia | 30.6 | 28% | +3% | 9.5% [Short-term bond] | +1% |
| Malawi | 30.2 | 17% | Fixed | ||
| Benin | 30.0 | 10% | +4% | 9.9% | +1% |
| Senegal | 27.4 | 10% | +4% | 10% | +1.5% |
| Cote d’Ivoire | 26.7 | 21% | +4% | 9.7% | +0.8% |
| Sri Lanka | 26.2 | 44% | -2% | 12% | +1.7% |
| Sudan | 23.9 | 10% | Fixed | ||
| Djibouti | 23.7 | 10% | Fixed | ||
| Kenya | 23.1 | 10% | -1% | 12.4% | +1.4% |
| Cabo Verde | 21.6 | 10% | +4% | ||
| Guinea-Bissau | 21.4 | 10% | +4% | ||
| Congo (Rep.) | 21.2 | 10% | +4% | ||
| Cameroon | 20.5 | 11% | +4% | 13.5% | +1.9% |
| Jordan | 20.4 | 20% | -1% | 9.4% | +0.7% |
| Nigeria | 19.0 | 14% | -4% | 11.5% | +1.2% |
| Average | 18% | 0 | 11.3% | +1.3% |
For external debt payments by country see Debt Justice’s Debt Data Portal: https://data.debtjustice.org.uk/