Developing Countries Face Historic Debt Pressures – World Bank
By Praisebell Rosemond Larbi
Developing countries are facing their most severe debt pressures in half a century, with new data from the World Bank revealing that low- and middle-income nations recorded a net outflow of $741 billion between 2022 and 2024. This represents the largest negative financing gap in at least 50 years, underscoring what economists describe as an unprecedented drain on resources that should otherwise support essential public services and growth.
The 2025 International Debt Report, released by the World Bank, shows that these countries collectively paid out more in interest and principal than they received in new external financing. Although 2024 brought some temporary relief as global interest rates peaked and bond markets reopened, the underlying debt crisis remained deeply entrenched. Many countries managed to avoid default only by entering restructurings valued at $90 billion, the highest level since 2010.
At the same time, bond markets showed renewed activity, with investors providing $80 billion more in new financing than they received. However, this came at a steep cost: borrowing rates hovered around 10%, roughly double the pre-2020 average. For many vulnerable economies, this meant substituting old debt with even more expensive financing.
“Global financial conditions might be improving, but developing countries should not deceive themselves: they are not out of danger,” warned Indermit Gill, the World Bank Group’s Chief Economist. He cautioned that debt accumulation is continuing “in new and pernicious ways,” urging governments to use today’s limited breathing room to strengthen fiscal management rather than rushing back to high-cost external borrowing.
The report indicates that by the end of 2024, total external debt owed by low- and middle-income countries had climbed to an all-time high of $8.9 trillion. Of this, a record $1.2 trillion was owed by the 78 countries eligible to borrow from the World Bank’s International Development Association (IDA), the institution’s window for the poorest nations. Interest burdens have risen sharply, with official creditors charging the highest average rates in 24 years, while rates paid to private creditors are at a 17-year high.
As a result, developing countries paid a staggering $415 billion in interest in 2024 alone. These funds, the World Bank notes, could have financed schooling, healthcare, nutrition programs, and critical infrastructure. The human impact is starkest in the world’s most indebted economies: among the 22 countries whose external debt exceeds 200% of their export revenues, more than half the population cannot afford the minimum daily diet needed for long-term health.
Access to concessional financing has dwindled as bilateral creditors mostly governments, have withdrawn following a wave of large-scale restructurings that reduced some countries’ debt by up to 70%. In 2024, bilateral creditors collected $8.8 billion more in principal and interest than they disbursed.
By contrast, the World Bank emerged as the largest provider of net positive financing to IDA countries, offering $18.3 billion more than it received and providing a record $7.5 billion in grants.
Facing shrinking external financing options, many developing countries have increasingly turned to domestic borrowing. Among 86 countries with available data, more than half saw domestic debt accumulate faster than external debt. While this shift signals growth in local capital markets, it carries risks. Heavy domestic borrowing can crowd out private-sector lending and increase refinancing pressures because of shorter maturities.
“It shows capital markets are evolving,” said Haishan Fu, the World Bank’s Chief Statistician. “But domestic debt comes with shorter maturiti…
