The World Bank has cautioned that developing countries remain vulnerable to rising debt burdens, despite signs of easing global financial conditions.
In its latest International Debt Report, the institution revealed that interest payments for developing nations reached a record $415.4 billion in 2024. Between 2022 and 2024, the gap between debt servicing costs and new financing widened to $741 billion, the highest in more than five decades.
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World Bank Chief Economist Indermit Gill said improving financial conditions should not mislead governments. “Developing countries are not out of danger,” he warned, noting that debt is continuing to grow “in new and harmful ways.”
Borrowing Costs Rise as Markets Reopen
With the end of the global interest rate tightening cycle, bond markets have reopened for most emerging economies. However, borrowing costs remain elevated, with average interest rates near 10%, roughly twice the levels seen before 2020. Affordable financing options continue to shrink.
Shift Toward Domestic Borrowing
The report highlights a growing shift toward domestic debt markets. In 50 low- and middle-income countries, domestic debt expanded faster than external debt in the past year. While this reflects the development of local financial markets, the Bank warns that increased government borrowing at home risks crowding out private sector lending and may raise refinancing risks due to shorter maturities.
Debt Restructurings Reach 14-Year High
Emerging markets restructured nearly $90 billion in external debt in 2024 — the highest level in 14 years. Countries undertaking restructurings included Ethiopia, Ghana, Zambia, Sri Lanka and Ukraine, while Haiti and Somalia benefited from debt forgiveness.
Bilateral Lending Plunges
Net bilateral lending collapsed 76% to just $4.5 billion, the lowest since the 2008 financial crisis. The decline has pushed many developing countries toward more expensive private sector borrowing.
Debt Risks Intensify
Even as multilateral lending increased — with the World Bank providing a record $36 billion — the study found that 54% of low-income countries are now either in debt distress or at high risk.
Gill urged policymakers to use the current period of financial “breathing room” to strengthen their fiscal positions instead of returning aggressively to external borrowing.
Source: Reuters
