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Developing countries paid US$995 billion in net interest on public debt in 2025. In 51 heavily indebted countries, 3.7 billion people live in economies that spend more on interest than on health or education, according to the UN Conference on Trade and Development (UNCTAD).
The scale of the problem is matched by the complexity of resolving it. Developing countries’ external debt reached US$12.3 trillion in 2025, while 75 of 119 low- and middle-income countries were in a debt crisis or at risk of one as of March 2026, according to the Center for Economic and Policy Research (CEPR).
The International Monetary Fund and World Bank are central to the international response, providing financing, debt relief and support to restructuring. Yet their ability to ease the burden is limited, as much of the debt is not owed to international financial institutions. Given this state of things, can their existing tools deliver the scale and speed of debt relief needed to restore governments’ capacity to invest in development?
The challenge is not simply the scale of the debt but the fragmented system through which it must be resolved. The World Bank’s International Debt Report 2025 found that private creditors held 57% of low- and middle-income countries’ public and publicly guaranteed long-term external debt in 2024. Multilateral institutions held 30%, while bilateral governments 13%.
In 2025, Debt Justice analyzed US$900 billion in external debt payments made by 88 lower-income countries and small island states between 2020 and 2025. Private lenders (excluding Chinese) received 39%, multilateral institutions 34%, bilateral governments 14%, while Chinese private and public lenders received 13%.
“Neither the IMF nor the WB can resolve the crisis through their own lending operations alone, given that much of the debt is owed to creditors beyond their direct control.”
Against this backdrop, neither the IMF nor the World Bank can resolve this crisis through their own lending operations alone, given much of the debt is owed to creditors beyond their direct control.
Simultaneously, there is no single global authority with the power to oversee comprehensive sovereign debt relief. Sovereign states cannot turn to a universal bankruptcy process to resolve unsustainable debt, leaving negotiations dependent on fragmented mechanisms.
The IMF and World Bank can provide debt relief through their own programs but cannot compel private or bilateral creditors to restructure loans. Their Heavily Indebted Poor Countries Initiative and Multilateral Debt Relief Initiative have provided debt relief to 37 countries amounting to more than US$100 billion.
The IMF’s lending-into-arrears policy allows it to provide financing under certain conditions before a deal with private creditors is reached. Its 2024 reforms to borrowing charges and surcharges are expected to save member countries about US$1.2 billion annually, reducing average payments on these charges by 36%.
Yet CEPR estimates the Fund will still collect US$5.2 billion in surcharges between 2025 and 2030. The G24 group of developing countries considers the fees procyclical and unfair to financially strained borrowers. However, the IMF argues they protect its lending capacity.
The World Bank provides concessional loans, grants, and technical assistance. Its Debt Reduction Facility helps eligible governments buy back certain commercial debts at a discount. In 2024, IDA-eligible countries received US$18.3 billion more in new financing than they paid in principal and interest repayments, alongside US$7.5 billion in grants. But new financing is not necessarily debt relief. Loans create future repayment obligations.
Beyond their own programs, both institutions influence restructuring through mechanisms designed to bring creditors together. The G20 Common Framework, developed with the Paris Club, allows eligible low-income countries to seek debt treatment from official bilateral creditors, with private creditors expected to provide comparable treatment. IMF and World Bank debt sustainability analyses help establish the scale of relief required, while financing and technical support can facilitate negotiations. Neither institution can force creditors to agree.
“The IMF and WB can facilitate negotiations and support debt relief, but neither institution can force creditors to agree.”
The Global Sovereign Debt Roundtable, co-chaired by the G20 presidency and the IMF and WB, provides another forum for borrowers, official creditors and private lenders to address obstacles to restructuring. It seeks to improve dialogue and procedures rather than negotiate individual debt deals.
The gap between coordination and results remains significant. Masood Ahmed, president emeritus of the Center for Global Development and a former senior IMF official, described progress under the Common Framework as “disappointingly limited”, citing a cumbersome, slow and unpredictable process. Debt restructuring took more than three years in Zambia and Ghana.
The question, therefore, is not whether the IMF and World Bank are doing anything. They have provided debt relief, new financing and technical support, and have helped establish mechanisms for creditors to work together. It is whether these measures can deliver timely, comprehensive relief when a large share of the debt is held by creditors beyond the institutions’ direct authority.
Debt relief matters not only because it reduces repayments. Its wider value lies in what governments can do with the resources released.
An IMF study found that, between 2001 and 2012, poverty-reducing expenditure in countries participating in the enhanced Heavily Indebted Poor Countries (HIPC) Initiative rose by more than 50% on average, while debt-service payments fell by a similar proportion. Uganda established a Poverty Action Fund to channel HIPC savings toward priorities including primary education, healthcare and water.
“The wider value of debt relief lies in what governments can do with the resources released.”
More recent debt-for-development swaps offer another route. A 2024 World Bank-backed transaction in Côte d’Ivoire is expected to free up €330 million over five years for education-related investment. Unlike conventional debt cancellation, such arrangements redirect savings generated through debt operations toward specified development expenditure.
The UN Office of the High Commissioner for Human Rights has warned that inadequate tracking systems can make it difficult to establish how debt-relief resources are used. HelpAge International identifies ring-fencing savings for social expenditure as one way to protect these funds, pointing to Uganda and Zambia as examples of countries that committed resources to poverty-reduction programs. Without effective tracking and safeguards, savings can be absorbed into general budgets, where competing demands make their impact harder to establish.
Proposals for reform range from improving existing mechanisms to creating a more comprehensive international system.
Tom Janvier, writing for Focus 2030, highlights calls for a UN convention on sovereign debt that would establish common rules for lending and borrowing, improve transparency, and ensure private creditors participate in restructuring.
Debtor countries are also seeking a stronger collective voice. The Borrowers’ Platform, mandated by the Sevilla Commitment and launched in April and serviced by UNCTAD, gives borrowing countries a standing space to share strategies and coordinate their positions. UNCTAD’s Rebeca Grynspan, during the platform’s launch last year, argued that “voice is not just the ability to speak; it’s the power to shape outcomes.”
“Proposed reforms could strengthen the international debt system but a mechanism capable of delivering comprehensive debt relief remains elusive.”
Climate-resilient debt clauses offer a more immediate, limited form of protection, allowing eligible borrowers to pause principal and interest payments after qualifying disasters. They can provide breathing space when a crisis strikes but do not resolve underlying insolvency.
The 2025 Sevilla agreement opened an intergovernmental process on gaps in the debt system, but formal negotiations on a convention have not begun. UNCTAD says the Borrowers’ Platform is “not a forum for collective debt restructuring negotiations.”
For the 3.7 billion people in the 51 countries that spend more on interest than on health or education, a central channel for binding reform has yet to open. The IMF and World Bank remain indispensable to managing sovereign debt crises, but their instruments address only parts of the problem. They can provide financing, facilitate negotiations and support debt relief, but cannot ensure that all creditors participate in a comprehensive resolution. Until the international system can overcome this fragmentation, debt-distressed countries will continue to face a difficult choice between servicing their obligations and financing development.