Developing countries paid out $741 billion more in principal and interest on their external debt than they received in new financing between 2022 and 2024 – the largest gap in at least 50 years, the World Bank said in its latest International Debt Report. Most countries got some breathing room last year as interest rates peaked and bond markets reopened, allowing them to restructure debt and dodge default.
In total, developing countries restructured $90 billion in external debt in 2024, more than any year since 2010. Bond investors poured in $80 billion more in new financing than they took back, helping several countries complete multi-billion-dollar bond issuances—though at steep interest rates hovering around 10 percent, roughly double pre-2020 levels.
Indermit Gill, the World Bank’s Chief Economist, warned that while global financial conditions might be improving, developing countries shouldn’t fool themselves into thinking they’re safe. “Their debt build-up is continuing, sometimes in new and pernicious ways,” Gill said, urging policymakers to use the current breathing room to fix their fiscal problems instead of rushing back into external debt markets. The combined external debt of low- and middle-income countries hit an all-time high of $8.9 trillion in 2024, with a record $1.2 trillion owed by 78 mainly low-income countries eligible to borrow from the World Bank’s International Development Association.
The average interest rate developing economies will pay to official creditors on newly contracted public debt in 2024 stood at a 24-year high, while the rate paid to private creditors hit a 17-year high. These nations paid a record $415 billion in interest alone—money that could have gone to schools, primary healthcare, and essential infrastructure. In the 22 most heavily indebted countries, where external debt exceeds 200 percent of export revenue, an average of 56 percent of the population can’t afford the minimum daily diet necessary for long-term health. Eighteen of these are IDA-eligible countries, where nearly two-thirds of people face the same problem.
Low-cost financing became harder to get except from multilateral development banks like the World Bank, which provided a record $18.3 billion more in new financing to IDA-eligible countries than it received back in principal and interest. It also gave out a record $7.5 billion in grants. Official bilateral creditors—mainly governments and government-related entities—pulled back after a wave of restructurings that slashed long-term external debt in some countries by up to 70 percent. In 2024, bilateral creditors took in $8.8 billion more than they disbursed to developing countries.
With cheap external financing drying up, many developing countries turned to domestic creditors like local commercial banks. Of 86 countries with available data, more than half saw domestic government debt grow faster than external government debt. Haishan Fu, the World Bank’s Chief Statistician, called the shift a policy accomplishment showing that local capital markets are evolving. But she cautioned that heavy domestic borrowing can push banks to load up on government bonds when they should be lending to the private sector. Domestic debt also comes with shorter maturities, raising refinancing costs. “Governments should be careful not to overdo it,” Fu said.
