Developing countries are facing the largest gap in more than five decades between their debt servicing costs and new financing, which reached $741bn between 2022 and 2024, the World Bank said in its annual International Debt Report.
The lender urged governments to use the current easing in global financial conditions to strengthen fiscal positions and avoid deeper vulnerabilities. The report noted that interest payments hit a fresh record of $415.4bn in 2024 despite some relief from declining global rates.
World Bank Chief Economist Indermit Gill cautioned that the apparent improvement in external conditions should not mislead policymakers, saying “developing countries should not deceive themselves: they are not out of danger,” and warning that debt accumulation is continuing “sometimes in new and pernicious ways.”
Global bond markets reopened for most emerging economies after the end of the aggressive global interest rate hiking cycle, enabling billions of dollars in new borrowing. However, the cost of this borrowing has risen sharply, with bond debt interest rates now close to 10%—about twice the levels seen before 2020—while access to low-cost financing has narrowed significantly.
The World Bank also flagged a shift toward domestic borrowing, reporting that in 50 countries, domestic debt expanded faster than external debt last year. While the trend reflects strengthening local credit markets, it also raises concerns about crowding out private-sector borrowing and increasing refinancing risks, as domestic debt typically carries shorter maturities.
