Developing economies face higher debt servicing costs as UNCTAD warns of investment squeeze

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Developing economies debt costs

Highlights

UNCTAD reports global public debt will reach $111 trillion in 2025, up from $49 trillion in 2010, with faster growth in developing economies.
Developing countries face average public debt interest rates of 5.2%, compared to 2.2% in developed economies, driving interest payments from $363 billion (2010) to nearly $1 trillion (2025).
In 51 developing countries, interest payments exceed government spending on health or education, with UNCTAD estimating possible $500 billion annual savings if borrowing costs matched developed economy rates.

Debt burden widens as borrowing costs stay elevated

As reported by UNCTAD, citing UN Trade and Development, its latest "World of debt" publication warns that higher and persistent borrowing costs are constraining public finances across developing economies. The agency says debt servicing in many developing countries now exceeds new external inflows, weakening debt’s role as a tool for future investment.

UNCTAD says global public debt reaches $111 trillion in 2025, up from $49 trillion in 2010. While developed economies hold more than two-thirds of that total, debt has been rising faster in developing countries.

Borrowing costs also remain markedly higher for poorer economies, which pay an average interest rate of 5.2% on public debt, compared with 2.2% in developed countries. As a result, interest payments on public debt in developing countries increase from $363 billion in 2010 to nearly $1 trillion in 2025.

Spending pressure grows ahead of Bangkok debt meeting

UNCTAD says the rising debt burden is increasingly limiting governments’ ability to fund essential services. In 51 developing countries, home to 3.7 billion people, interest payments on public debt exceed government spending on health or education.

The report estimates that developing countries could save about $500 billion a year in interest payments if they were able to borrow at rates similar to those paid by developed economies. UNCTAD says that sum could finance roughly 1.3 million primary healthcare centres or provide a minimum-diversity diet for around 1.6 billion children annually.

At the global level, the agency calls for reversing declines in official development assistance, expanding lending by multilateral and regional development banks, and increasing technical support to strengthen national capacity. At the country level, it urges stronger macroeconomic management, better public institutions, improved debt portfolio structures and wider use of innovative financial instruments, ahead of a Borrowers’ Platform meeting set for 12 October in Bangkok during the IMF-World Bank Annual Meetings.

In our earlier article on U.S. Treasury yields climbing amid fresh bond supply and Fed minutes, we explained how investors were reassessing inflation risks, debt levels and the term premium in government bonds. We noted that the upcoming 10-year note auction was seen as a key test of demand after a broad sell-off, with persistently elevated yields raising concerns about higher debt-servicing costs and tighter fiscal choices.

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