Paying More Than They Borrow: The Developing-World Debt Squeeze

Between 2022 and 2024 developing countries paid about US$741 billion more in principal and interest on their external debt than they received in new financing, the largest gap in at least 50 years. This paper reviews the World Bank's International Debt Report 2025, sets out who is still lending, and assesses what the shift in creditors means for the politics of sovereign debt.

Key points

• Between 2022 and 2024, developing countries' external debt service exceeded new financing by about US$741 billion, the largest debt-related outflow in more than 50 years [1; 2].
• The external debt stock of low- and middle-income countries (LMICs) reached a record US$8.9 trillion in 2024, of which a record US$1.2 trillion was owed by the 78 countries eligible for the World Bank's International Development Association (IDA) [1; 2].
• LMICs paid a record US$415.4 billion in interest in 2024, 2.4 times the level of a decade earlier [2].
• Net debt inflows from bilateral creditors fell 76% to US$4.5 billion in 2024, while multilateral lenders and bondholders supplied most new money [2].
• About US$90 billion of external debt was restructured in 2024, more than in any year since 2010 [1; 2].

1. The problem

Debt is usually discussed as a stock: how much a country owes. The more revealing measure for international politics is the flow: whether new lending into a country exceeds what it pays back. On that measure the early 2020s marked a reversal. The World Bank's International Debt Report 2025, published on 3 December 2025, finds that between 2022 and 2024 developing countries paid out about US$741 billion more in debt repayments and interest than they received in new financing [1; 2]. The Bank describes this as the largest debt-related outflow in more than 50 years [2].

In 2024 alone, LMICs paid out US$205.1 billion more in principal and interest than they received in new loans, the third consecutive year of net outflows [2]. This paper examines the composition of that squeeze and why it matters beyond finance ministries.

2. The evidence

A record stock, growing more slowly. The total external debt stock of LMICs rose by only 1.1% in 2024, to US$8.9 trillion, after more than doubling from its 2010 level [2]. The 78 IDA-eligible countries owed a record US$1.2 trillion [1].

The price of money. Interest payments on LMICs' total external debt reached an all-time high for the second consecutive year, rising 2.2% to US$415.4 billion in 2024, 2.4 times higher than a decade earlier [2]. The World Bank reports that the average interest rate on newly contracted public debt owed to official creditors was at a 24-year high in 2024, and the average paid to private creditors at a 17-year high [1]. Bond markets reopened, but at a cost: rates on new issuance hovered around 10%, about double those before 2020 [1].

A change of creditors. Net debt inflows (disbursements minus principal repayments) to LMICs rose 40.7% to US$210.3 billion in 2024, driven mainly by bond issuance and multilateral institutions, which together accounted for 86.5% of long-term debt inflows [2]. Bond flows swung from a US$75.4 billion outflow in 2023 to a US$55.0 billion inflow in 2024 [2]. Multilateral creditors recorded US$70.1 billion in net debt inflows, accounting for 73.2% of public and publicly guaranteed (PPG) net debt flows [2]. The World Bank itself provided a record US$18.3 billion more to IDA-eligible countries than it received back, plus US$7.5 billion in grants [1].

Bilateral lenders moved the other way. Net debt inflows to LMICs from bilateral creditors fell 76% to US$4.5 billion, their lowest level since the 2008 financial crisis, and to IDA-eligible countries they fell 84.8% to US$1.7 billion [2]. Measured as net transfers including interest, bilateral creditors took in US$8.8 billion more than they disbursed [1].

Turning inwards. With low-cost external finance scarce, many governments borrowed at home. Of 86 countries with available data, more than half saw domestic government debt grow faster than external government debt [1].

Restructuring at scale. Creditors agreed to restructure about US$90 billion of developing-country debt in 2024, more than at any time since 2010; agreements for Ghana, Haiti, Somalia and Sri Lanka reduced long-term external debt by between 4% and 70% [2].

The human cost. Among the 22 most highly indebted countries, those whose external debt stock exceeds 200% of export revenue, an average of 56% of the population cannot afford the minimum daily diet needed for long-term health [1].

3. Analysis

Three implications stand out for international and strategic affairs.

First, multilateral lenders have become the lender of first resort, not last. When bilateral and commercial bank flows contract while multilateral flows remain large, the governance of institutions such as the World Bank and the regional development banks, including their capital, voting and conditionality, becomes more consequential for borrowers. Debates over their reform are therefore also debates about who finances the developing world.

Second, the retreat of bilateral creditors changes the geometry of influence. Government-to-government lending has long carried diplomatic weight. A year in which bilateral creditors were net recipients of cash from developing countries [1] suggests that, for now, lending is a weaker instrument of statecraft than in the previous decade, while repayment and restructuring terms have become the main arena of bargaining.

Third, restructuring capacity is being tested. The 2024 restructuring volume was the highest since 2010 [2], and the report credits the Global Sovereign Debt Roundtable, led by the IMF and the World Bank, with helping Ghana complete its official bilateral restructuring in half the time of earlier cases under the G20 Common Framework [2]. Speed matters: the longer a restructuring takes, the longer resources flow out rather than into public services.

The risk is that renewed bond-market access, at rates near 10% [1], rebuilds vulnerabilities rather than resolving them, and that domestic borrowing shifts risk on to local banking systems [1].

4. Assessment

• The squeeze is a flow problem as much as a stock problem: the record outflow of 2022–24 occurred even as stock growth slowed [1; 2].
• Multilateral institutions now carry a disproportionate share of net financing to the most vulnerable borrowers, raising the stakes of their governance and capital decisions [1; 2].
• The faster restructuring seen in some 2024 cases [2] is encouraging but rests on a small number of agreements.
• Indicators to watch: the next International Debt Report's net-transfer figures, the cost of new sovereign bond issuance, and progress on restructurings under the Common Framework.

References

1. World Bank, "Developing Countries' Debt Outflows Hit 50-Year High During 2022-2024", press release 2026/024/DEC, 3 December 2025. https://www.worldbank.org/en/news/press-release/2025/12/03/developing-countries-debt-outflows-hit-50-year-high-during-2022-2024 (accessed 26 October 2026).
2. World Bank, International Debt Report 2025 (Washington, DC: World Bank, 2025), Foreword and Key Takeaways. https://documents1.worldbank.org/curated/en/099122225162037208/pdf/P165236-a536f876-71a7-4abb-b204-80ef88d247a1.pdf (accessed 26 October 2026).