Cape Town, 25 February 2025 - The debt crisis facing many developing countries is reaching new heights not seen in more than two decades resulting in devastating development trade-offs, according to a new policy brief by UNDP.
A new policy brief, released ahead of the G20 Ministers of Finance and Central Bank Governors meeting in Cape Town, warns that debt vulnerability indicators remain alarmingly elevated, and are only worsening. Debt servicing is consuming a high and growing share of national revenue in developing countries-, particularly in Least Developed Countries.
Currently, interest payments exceed 10 percent of government revenue in 56 developing countries - nearly double the number from a decade ago. Among them, 17 countries spend more than 20 percent on interest payments, a threshold strongly linked to default risk.
"The debt-development trade-offs threaten a lost decade of development progress for many of the world's poorest nations," said Achim Steiner, UNDP Administrator. "The international community must not wait until the last minute to provide tangible financial lifelines. A new debt relief initiative makes financial and political sense."
The total external public debt for the 31 poorest countries currently in or at high risk of debt distress is estimated at $205 billion - less than a third of the 2021 IMF Special Drawing Rights allocation, which predominantly went to wealthy countries, and less than one year of total official development assistance (ODA) from the OECD's Development Assistance Committee.
UNDP's analysis stresses that without better access to more effective debt relief, many developing countries risk long-term solvency crises.
In 2023, developing economies' total external debt servicing reached a record $1.4 trillion. The poorest countries have been hit hardest, with debt servicing costs tripling and interest payments quadrupling over the past decade, totaling an estimated $36 billion.
Looking ahead to the International Conference on Financing for Development (FfD4) in Seville, Spain, this June, UNDP is urging policymakers to prioritize three key debt policy reforms:
- A more effective and orderly debt restructuring framework - ensuring all developing countries access when needed.
- A systemic debt relief initiative - to support the poorest countries in breaking the vicious cycle of underinvestment in development.
- Reducing excessively high borrowing costs - to allow developing countries to invest in long-term growth.
"Forums like the G20 have an important role in shaping long-term financing solutions that promote sustainable growth opportunities" UNDP Administrator Steiner said. "Critical priorities like debt stress are reaching a tipping point that require bold, immediate action to create a path towards growth and stability for those who need it most."
To read the full Policy Brief, visit www.undp.org/publications/undp-debt-update-development-gives-way-debt
