Net financial flows climbed to $1.1 trillion in 2017, a level last seen in 2013. The rebound in aggregate net financial flows was driven by net borrowing which rose to $607 billion in 2017 from $181 billion in 2016, surpassing net equity inflows for the first time since 2013.
A sharp rise in both long-term and short-term debt inflows contributed to the increase. Foreign direct equity investment (FDI) inflows, long considered the most stable and resilient component of otherwise volatile financial flows, contracted for the second consecutive year, falling a further 3 percent in 2017. In contrast, portfolio equity inflows rose to $57 billion, an increase of 29 percent over 2016.
The total external debt of low- and middle-income countries rose 10 percent in 2017 to $7.1 trillion, a faster pace of debt accumulation than the 4 percent increase in 2016.
Regional level trends in external debt in 2017 accumulation varied. Countries in sub-Saharan Africa accumulated external debt at a faster pace than low- and middle-income countries in other regions in 2017: the combined external debt stock rose 15.5 percent from the previous year to $535 billion. Much of this increase was driven by a sharp rise in borrowing by two of the region’s largest economies, Nigeria and South Africa, where the external debt stock rose 29 percent and 21 percent respectively.
South Asian economies expanded external debt stocks by 13.3 percent on average, led by Bangladesh (23 percent) and Pakistan (17 percent). The Middle East and North Africa region saw external debt stocks rise 11.7 percent as a 23 percent rise in the external debt stock of Egypt in 2017 was offset by a 5 percent increase in Lebanon. Countries in the East Asia and Pacific region other than China increased external debt stocks by an average of 9.3 percent. External debt stocks rose 2.5 percent in Europe and Central Asia and in Latin America and the Caribbean in 2017.
Public sector entities in the world’s poorest countries borrowed externally on a large scale in 2017 despite rising concerns about debt sustainability. New loan commitments to the public sector in IDA only countries totaled $43 billion. While official creditors continue to account for the largest share (around 75 percent) of long-term external debt stocks, borrowing from private creditors is the fastest growing component. External obligations to private creditors rose to $83 billion at end 2017, equivalent to 26 percent of long-term external debt. Multilateral creditors continued to be the largest creditor group, however their share of long-term external debt declined to 43 percent at end 2017, from 53 percent in 2008. Of the 59 IDA-only countries, 12 accounted for 65 percent of external debt stock at end 2017. Bangladesh was the largest IDA-only borrower with an external debt stock of $47.2 billion at end 2017, followed by Ethiopia ($26 billion), Ghana ($22 billion) and Sudan, $21.7 billion.