TWN Info Service on UN Sustainable Development (Nov26/01)
3 November 2026
Third World Network

UN: Rising debt burden threatens development prospects, warns UNCTAD
Published in SUNS #10546 dated 2 November 2026

Penang, 30 Oct (Kanaga Raja) -- Global public debt more than doubled to US$111 trillion in 2025 from US$49 trillion in 2010, UN Trade and Development (UNCTAD) has said, underscoring the rapid buildup of sovereign borrowing worldwide.

In the latest edition of its "A World of Debt" report, UNCTAD said while developed economies still account for more than two-thirds of the global debt stock, debt levels have risen much faster in developing countries, raising concerns over growing fiscal vulnerabilities, higher debt-servicing costs and constrained public investment needed to support sustainable development and economic growth.

The report found that developing countries paid almost US$1 trillion in net interest on public debt in 2025, nearly three times the 2010 level.

It said three developments have brought this about: (i) A sharp rise in global policy rates in 2022 and 2023 which have been slow to fall, causing debt to be repriced as it matures and average interest rates on debt portfolios to rise; (ii) Private creditors reducing their exposure to developing countries; and (iii) A contraction in bilateral support, with official development assistance (ODA) falling from 0.37% of donor's gross national income in 2023 to an estimated 0.26% in 2025.

Rising borrowing costs are adding pressure on developing countries' public finances, limiting the resources available for health, education and other development priorities, UNCTAD pointed out.

PUBLIC DEBT RISES

According to the report, global stocks of public debt (comprising the outstanding debt obligations of all levels of government, whether domestic or external) reached close to US$111 trillion in 2025 - up by over US$8 trillion on its 2024 levels.

Collectively, developed countries - which represent less than a fifth of the world's population - accounted for over US$75 trillion (68%) of global public debt in 2025, with developing countries - home to over 80% of the population - adding a further US$35 trillion.

In 2010, China contributed a quarter of the debt stock of developing countries, but by 2025 - on the back of average annual growth of over 16% - its share had risen to more than half.

In 2025, the United States accounted for a third of total global public debt, China 17%, Japan 8%, the United Kingdom 4% and India 3%, said the report.

Regionally, African countries collectively held less than 2% of global public debt, while those in Latin America and the Caribbean contributed close to 5% and developing countries in Asia and Oceania added 25%.

The report said in the case of developed countries, the average rate of increase in debt stocks more than doubled in the post-pandemic period - from 2.9% a year between 2010 and 2019 to 6% a year between 2019 and 2025.

The rate of increase accelerated more modestly in developing countries, but from an already much higher rate of 10% a year.

However, the report said with China excluded, the post-pandemic growth rate decreased to just over 7% - not significantly higher than the growth of developed countries.

Pointing out that the debt trajectories of developed and developing countries differ markedly, the report said that whereas the weighted average debt-to-GDP ratio of developed countries was consistently above 90% after 2010, and reached 117% during the pandemic, the corresponding ratio for developing countries rose steadily from around 39% in 2010 to 79% in 2025.

However, the post-pandemic public debt trajectory of developing countries diverges significantly when China is excluded - initially falling in 2021 and 2022 and then remaining relatively stable at around 63% in the following years.

For African countries, the ratio of public debt to GDP stood at 29% in 2010 but had doubled by 2020. It then jumped again in 2023 and 2024 before softening in 2025, said the report.

Latin America and the Caribbean followed a broadly similar path from a higher starting point, peaking during the pandemic and retreating thereafter, it noted.

Developing Asia and Oceania saw its average debt ratio soften slightly in 2011, before rising rapidly till 2020.

After slowing slightly in 2021 and 2022, the pace of increase then accelerated, reaching 81% in 2025. However, if China is excluded from the analysis, the region's post-pandemic debt trajectory is quite different, with the ratio peaking at around 61% in 2020 and then slipping back in subsequent years.

BORROWING COSTS SOAR

According to the report, the ability to consistently access external debt markets expands both the scale and the range of financial capital available to developing countries and can also reduce its cost.

However, these new external debt inflows result in stocks of debt liabilities which need to be repaid and on which interest is levied.

Both the principal repayment and the interest are usually denominated in the same currency as the original debt (typically US dollars, euros, yen or renminbi), said the report.

As a result, the borrowing country must earn sufficient foreign currency through its exports and other financial inflows to cover both its debt servicing requirements and its essential imports.

A failure to do so can result in foreign currency shortages, growth-restricting policy responses aimed at curbing imports and, in some cases, an inability to service the external debt, it cautioned.

It is generally easier for governments in countries with deep domestic capital markets to finance fiscal deficits by borrowing domestically, it noted.

However, the report said that if domestic capital markets are illiquid, with small volumes of a limited range of financial assets being traded infrequently at relatively high cost by a small number of participants, financing significant fiscal shortfalls carries risks - including limiting the access of private households and businesses to affordable finance and contagion effects being transmitted between banks, long-term insurers and governments.

The relative shallowness of capital markets in many developing countries also tends to make domestic borrowing more expensive, it added.

It said excluding China, the costs of domestically sourced government debt in developing countries were, on average, 2.8 percentage points higher than externally sourced debt between 2014 and 2024.

For these and other reasons, the report said that governments in developing countries have tended to depend on external debt to varying degrees.

"Such debt takes the form of loans - which might be from multilateral lenders such as development banks, other governments (bilateral lenders) or foreign commercial banks - and sovereign bonds issued to foreign investors."

However, while the value of external public debt has increased, its share of the total stock of public debt has generally decreased since 2010 due largely to several global shocks that have reduced liquidity in global debt markets and increased the relative cost of borrowing externally.

Hence, it said that while the median share of debt sourced externally by developing country governments stood at 53% of their debt in 2010, by 2024 this share had dropped to 44%.

In African countries the decreased reliance on external public debt was even more pronounced - dropping by 12 percentage points over the period, while in Developing Asia and Oceania and Latin America and the Caribbean, the decrease was still evident - but more subdued.

UNCTAD said that for most of the past fifteen years, external public borrowing was a net additional source of finance for developing countries - but not in recent years. Excluding China, net debt transfers peaked at US$150 billion in 2014 and were negative in 2022, 2023 and 2024.

From 2022 to 2024, bilateral creditors lent US$135.9 billion to developing economies excluding China, less than half what multilateral institutions provided.

After principal and interest payments are deducted, what stayed in these countries was only US$2.4 billion, said the report.

On the other hand, it said multilateral institutions delivered US$74.3 billion over the same three years, offsetting a significant portion of the US$111 billion withdrawn by private creditors.

The report also found that in 2024, 53 of 110 developing economies for which the necessary data exists paid their external public creditors more than they received - twice as many as in 2010.

"What began as a problem affecting a small number of borrower countries now describes close to half of the developing world," it emphasized.

Africa accounts for the largest number of these countries, with 22 in net outflow, followed by 19 in Asia and Oceania and 12 in Latin America and the Caribbean.

However, measured against the number of economies covered in each region, the strain is relatively heavier in Latin America and the Caribbean (55% of countries) and in Asia and Oceania (51%) than in Africa (44%).

More importantly, the report said the reversal in net debt transfers has coincided with a decline in one of the most affordable sources of external finance for many developing countries - official development assistance (ODA).

It said that while the debt service burdens of developing countries have risen, the ODA provided by Organisation for Economic Co-operation and Development (OECD) Development Assistance Committee (DAC) countries is estimated to have declined sharply in 2025 and is projected to contract further in the coming years.

If these projections are realized, all the increases recorded since 2017 will be reversed, UNCTAD warned.

Notably, it said the retrenchment has been uneven: bilateral ODA is estimated to have fallen by over 26% in real terms between 2024 and 2025, double the projected 13% decline in multilateral ODA.

Multilateral channels have therefore provided only a partial buffer against the broader reduction in development assistance, it pointed out.

As a share of DAC members' combined gross national income, ODA declined from 0.37% in 2023 to 0.34% in 2024 and to 0.26% in 2025 - moving further away from the United Nations target of 0.7%.

As new external finance has become scarcer, the cost of servicing existing external debt has continued to rise, the report stressed.

Consequently, it said while developing countries rely less on external public debt than they did, the burden of servicing it has increased.

Despite this reduced dependence, the stock of outstanding debt owed to foreign creditors continued to increase - albeit at a slower rate in the post-pandemic period, said the report.

Between 2010 and 2021, developing countries added close to US$2.5 trillion to their external public debt - an average increase of around US$220 billion per year. However, between 2021 and 2024, they added just US$86 billion in additional debt.

The report said prior to the pandemic, the costs of servicing external public debt increased at a very similar pace to the underlying stocks.

However, between 2021 and 2024 a widening gap emerged, with stocks increasing by just 2% and costs rising by 28%, it stressed.

The report said in the context of an estimated financing gap of around US$4.3 trillion a year to deliver on the Sustainable Development Goals (SDGs) by 2030, and the tendency for external financing costs to serve as a benchmark for domestic borrowing costs in many developing countries, the rising costs of servicing external public debt constitutes a significant obstacle to achieving development agendas.

"The gap between external public debt and its servicing costs places increasing pressure on countries' capacity to generate foreign currency through exports and mobilize sufficient government revenues to service these debts."

The report said that while the interest rate on new loans to developing countries increased significantly for all creditor groupings after the pandemic, debt advanced by private creditors was 2.6 percentage points more costly than from bilateral creditors in 2024, and 1.7 percentage points more expensive than loans from the multilateral lenders.

Significantly, it said recent geopolitical developments have added to these pressures, both by raising borrowing costs and by weakening the capacity of developing countries to service their debt.

While 2025 saw some improvement in borrowing conditions for developing countries due to reduced policy rates in developed regions and some increase in liquidity in capital markets, coupon rates on new issuances were still elevated, and maturities remained short, it added.

Consequently, opportunities for cost-reducing refinancing remained limited, as borrowing costs of new debt were generally higher than the debt it was replacing, said the report.

The report pointed out that these conditions have been exacerbated by the conflict in the Middle East, which has resulted in increased geopolitical uncertainties, higher energy costs, disruptions to global supply chains, increased inflationary pressures and the consequential postponement and, in some cases, reversal of reductions in monetary policy rates.

For example, it said the yield on sovereign bonds issued by financially integrated developing countries increased by an average of 30 basis points following the start of the conflict.

In many countries, governments have attempted to shield their people from the most immediate impacts of the conflict by increasing fuel subsidies or reducing fuel taxes - leaving growing gaps in government budgets. The longer the disruptions caused by the conflict continue, the larger these gaps will be, it said.

These developments have not only resulted in limited access to external debt finance and rising borrowing costs for developing countries, but have also simultaneously undermined their debt servicing capacity by reducing economic growth, net export earnings and fiscal revenues - particularly in energy-importing countries.

If the higher interest burdens arising from the conflict become embedded, it could add up to $57 billion to the interest costs of developing countries, the report cautioned.

"These impacts are not only reflected in the sovereign yields of developing countries. Ten-year US Treasury yields rose by an average of 32 basis points since the start of the conflict, German 10-year Bunds by 26 basis points and Japanese sovereign 10-year bonds by 55 basis points."

Hence, the report suggested that while borrowing costs have increased in developing countries, they have risen in developed countries too, shrinking the fiscal space of these countries and contributing to a further contraction of their ODA contributions.

Developing countries could therefore be squeezed on both sides: higher borrowing costs coupled with reduced access to bilateral concessionary finance, it argued.

DEBT SERVICE COSTS

The report also found that on average, developing countries pay interest rates on their total public debt (both external and domestic) that is almost three times that paid by developed countries.

For example, between 2010 and 2025, this interest premium averaged 320 basis points (3.2 percentage points), with developed countries paying an average of 1.7% a year and developing countries excluding China averaging 4.9% a year.

"This interest premium represents a developmental opportunity cost: higher rates translate into increased interest costs in budgets and less money being available to support development and climate agendas."

The report said that if the 94 developing countries that currently pay higher interest rates on their public debt than the average developed country could borrow at similar rates, they would collectively save almost US$500 billion each year in interest.

Illustratively, it said such savings could be employed to finance significant additional investments in economic, social and digital infrastructure and other development programmes, and help to put the sustainable development agenda back on track.

More worryingly, it said that the scale of this opportunity cost is reflected in developing countries' rapidly rising interest bills.

Higher borrowing costs magnify the budgetary impact of larger debt stocks, while growing interest payments can increase refinancing needs and reinforce debt accumulation, it explained.

These pressures have intensified since 2020, with net interest payments growing at a rate of over 11% per annum to reach US$995 billion in 2025, nearly three times their 2010 level.

The report said that in 2025, an estimated 57 developing countries allocated at least one tenth of government revenues to interest payments, limiting their capacity to absorb shocks and making expenditure adjustment more difficult when financing conditions deteriorate.

"Rapidly rising interest payments are absorbing a greater share of government revenues, thereby constraining the fiscal space available for other public expenditures."

UNCTAD said between 2010 and 2023, per capita interest payments in developing countries grew significantly faster than equivalent health and education expenditures in most developing countries.

Interest costs continued to rise strongly in both 2024 and 2025, so the gap is likely to have widened further, the report suggested.

It said the rising interest burden has forced developing countries to spend more on debt servicing than on critical developmental priorities.

Citing some examples, the report said in 2023, public sector interest per capita in Africa, and in Latin America and the Caribbean was higher than equivalent spending on either health or education.

It said that in Developing Asia and Oceania (excluding China) it was higher than per capita spending on health.

"As interest payments absorb a greater share of public resources, less is available to finance other expenditures that are critical to long-term development goals."

The number of countries where public interest payments surpassed government spending on these essential services has also continued to rise, it added.

In 2023, 20 countries spent more on interest payments than on education, and 46 countries spent more on interest payments than on health.

"The growing number of countries affected highlights the increasingly difficult trade-off developing countries face between debt servicing and essential public investment," the report pointed out.

UNCTAD said rising interest costs and the resulting erosion of fiscal space mean that an increasing share of the developing world's population live in countries where public spending on interest exceeds that on either health or education.

While 24% of Africa's population lived in countries in this position in 2010, by 2023 it had risen to 65%, and in Latin America and the Caribbean it rose from 34% to 58% over the same period. In addition, in Developing Asia and Oceania, the increase was more modest, from 50% in 2010 to 53% in 2023.

As a result, the total number of people in this position increased from 2.5 billion in 2010 to 3.7 billion in 2023.

Against this backdrop, the report said reducing the interest costs that developing countries pay on their public debt requires a combination of short-term interventions aimed at offsetting or reversing the factors contributing to the recent increases in interest rates and longer term, and long-overdue, reforms that structurally reduce the interest premium that they pay. +