Finance
World Bank warns developing world 'not out of danger' as debt costs hit record
Published by Global Banking and Finance Review
Posted on December 3, 2025
2 min readLast updated: January 20, 2026
Global Banking and Finance Review
Company
Published by Global Banking and Finance Review
Posted on December 3, 2025
2 min readLast updated: January 20, 2026
World Bank warns developing nations of record debt costs, urging fiscal reforms amid improving global financial conditions.
By Libby George
LONDON, Dec 3 (Reuters) - The gap between developing nations' debt servicing costs and new financing hit a more than 50-year high of $741 billion between 2022 and 2024, the World Bank said on Wednesday, urging countries to use the more relaxed global financing conditions to bring their houses in order.
In its annual International Debt Report, the Washington-based lender also found that overall interest payments had hit a fresh record of $415.4 billion in 2024 despite some relief from falling global interest rates.
"Global financial conditions might be improving, but developing countries should not deceive themselves: they are not out of danger," World Bank Chief Economist Indermit Gill said in the report, adding that debt build-up is continuing "sometimes in new and pernicious ways."
Bond markets reopened for most countries as the long global interest rate hiking cycle ended, paving the way for billions of dollars in new issuance. But this came at a cost, with interest rates on bond debt near 10% - roughly double those before 2020 - and options for low-cost financing dwindling.
Emerging nations are also increasingly turning to domestic debt markets to fund themselves. In 50 countries, domestic debt grew at a faster pace last year than external debt.
The bank said this was a sign of evolving local credit markets but cautioned that it could squeeze local bank lending to the private sector and potentially raise the cost of refinancing due to shorter maturities.
Emerging markets reworked nearly $90 billion of external debt in 2024 - a 14-year high - including restructurings in Ghana, Zambia, Sri Lanka, Ukraine and Ethiopia and debt forgiveness in Haiti and Somalia.
Meanwhile, net flows of bilateral lending collapsed 76% to $4.5 billion, a level not seen since the 2008 financial crisis, forcing countries to seek more costly private financing.
While multilateral lending rose and the World Bank itself lent a record $36 billion, 54% of low-income nations are now in debt distress or facing high debt risks.
"Policymakers everywhere should make the most of the breathing room that exists today to put their fiscal houses in order instead of rushing back into external debt markets," Gill said.
(Reporting by Libby George; Editing by Karin Strohecker and Joe Bavier)
Debt sustainability refers to a country's ability to manage its debt without requiring debt relief or accumulating further debt. It ensures that the country can meet its current and future financial obligations.
Emerging markets are economies that are in the process of rapid growth and industrialization. They typically have lower income levels than developed countries but offer significant investment opportunities.
Debt servicing is the process of paying back the principal and interest on a loan or debt. It is a critical aspect of financial management for both individuals and countries.
Interest payments are the costs incurred by borrowers for the use of borrowed funds. They are typically calculated as a percentage of the principal amount borrowed.
Bilateral lending involves loans provided by one country to another, often with specific terms and conditions. It is a common practice in international finance to support development projects.
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