Developing country debt reaches record high as borrowing costs strain poorest economies

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Developing country debt record high

Highlights

Developing country debt rose 5.5% in 2023, the fastest increase in four years, driven by a sharp rise in private sector lending.
Countries eligible for concessional World Bank lending now face average new borrowing interest rates of 8.2%, the highest since the late 1980s, with some like Laos at 11.5%.
UK will champion global debt reform, appointing Gordon Brown to review the regime ahead of its 2025 G20 presidency, including potential multilateral buybacks to lower repayment burdens.

World Bank report highlights rising debt-service pressure

As reported by The Guardian, citing the World Bank in its annual International Debt Report, debt owed by developing countries rises by 5.5% last year, the fastest increase in four years, driven by a sharp increase in private sector lending.

The bank says the rising cost of servicing external debt is preventing some governments from investing for the future. Haishan Fu, the World Bank’s chief statistician, says access to international finance has improved, but its price has not, leaving low- and middle-income countries borrowing more, paying more and in many cases setting aside less for long-term development.

According to the data, countries eligible for concessional World Bank lending face an average interest rate of 8.2% on new borrowing, the highest level since the late 1980s. Preliminary data for 2026 also suggests lending continues at a rapid pace while high global financing costs keep borrowing rates elevated.

The bank points to recent borrowing by Laos at 11.5%, the Republic of Congo at 13.88%, and Kenya at 9.2%. It also says global shocks have a stronger effect on food availability in heavily indebted countries, linking debt burdens to a decline in the affordability of a healthy diet during periods of global stress.

UK pushes debt agenda ahead of G20 presidency

The UK government is preparing to champion a new drive on debt as part of its G20 presidency next year, a move Prime Minister Andy Burnham links to confronting the legacy of slavery.

Burnham appoints former Labour prime minister Gordon Brown to examine the feasibility of changes to the global debt regime before the UK takes over the G20 chair. Last month, Foreign Secretary Ed Miliband sets out plans for a new deal for heavily indebted countries in a speech at the IMF annual meetings in Bangkok.

The proposals are likely to include using the balance sheets of the World Bank and other multilateral development banks to buy back outstanding debt, with the aim of extending repayment periods and lowering interest rates. However, the picture is more complex than before the 2005 Gleneagles summit because current creditors are more often private-sector bondholders rather than governments.

Pressure for reform of the international debt framework is also growing more broadly, including from African Union heads of state and during the G20 chairs of Brazil and South Africa.

Our earlier coverage of Mario Draghi’s warning on debt and monetary tightening focused on how interest rates staying above growth rates can steadily worsen public debt dynamics. We noted his argument that central banks should prioritize inflation control while keeping rates as low as possible to avoid choking off productive investment, alongside calls for complementary pro-growth measures such as deeper EU market integration and targeted funding for AI-related investment.

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