Developing countries entered 2025 facing a convergence of economic challenges. Major international policy shifts, escalating geopolitical tensions, tighter financial conditions, and declining official development assistance (ODA) have weakened export performance, dampened growth prospects, and constrained government revenues. Although growth of external debt moderated in 2024, fiscal and external buffers across many developing countries continued to erode — threatening not only debt sustainability but also progress toward sustainable development.
In 2024, total external debt in developing countries reached $11.7 trillion, up from $11.4 trillion in 2023. Excluding China, debt stocks stood at $9.3 trillion, increasing by 3.1 per cent. While the pace of debt accumulation has slowed, debt servicing costs remain high, diverting critical resources away from education, health, infrastructure, and other development priorities. In 2024, developing countries faced an estimated $1.6 trillion in external debt service obligations.
Debt sustainability is under threat across developing countries
Although overall debt stocks and service levels appeared relatively stable, key debt-sustainability indicators deteriorated across many developing countries. For all developing countries excluding China, public and publicly guaranteed (PPG) external debt service rose to 8.4% of government revenue in 2024, up from 7% in 2023. Meanwhile, total external debt service absorbed 16.3% of export earnings. This slight improvement from 17% in 2023 was driven mainly by upper-middle-income countries, masking worsening conditions in low- and lower-middle-income countries, where costlier debt service and subdued exports continue to crowd out essential investments to achieve sustainable development.
While sustainability indicators remained stable or worsened only moderately in some developing countries, others — especially the most vulnerable — experienced a dramatic deterioration. Low-income countries were hit hardest across income groups. Debt service payments nearly doubled in 2024, as low economic growth and falling commodity prices depressed export and government revenue performance. As a result, low-income countries spent a record 24.2% of export earnings on external debt service and 18.1% of government revenue on servicing PPG debt. Lower-middle-income countries also saw their external debt sustainability deteriorate due to a wall of principal repayments falling due in 2024.
Similar to low-income countries, debt sustainability in the Least Developed Countries (LDCs) continued to deteriorate in 2024, as economic growth decelerated and government revenues weakened amid conflicts and rising geopolitical tensions. In 2024, LDCs spent around 22.3% of government revenue on servicing PPG debt– the highest share among all developing country groups – and 21% of export revenue on total external debt service.
Small Island Developing States (SIDS) experienced a slight improvement in debt sustainability indicators following the sharp deterioration during the 2020 COVID-19 shock. Supported by a recovery in international tourism — a key source of foreign exchange — and stronger economic growth, the ratios of external debt service to exports and PPG debt service to government revenue declined to 19.6% and 17.6%, respectively, in 2024. Nevertheless, despite this improvement, debt burdens in SIDS remain at critically high levels.
In 2024, regional comparisons reveal that all developing regions except Europe and Central Asia experienced a deterioration in public sector external debt sustainability, as rising debt service outpaced government revenues. Sub-Saharan Africa saw the most pronounced decline: governments spent 18.7% of their revenues on servicing external public and publicly guaranteed debt — a threefold increase since 2014. External debt sustainability also worsened substantially, with the ratio of total debt service to exports more than doubling since 2014.
Official development assistance is shrinking
At the same time that fiscal pressures are intensifying and the financing gap for achieving the Sustainable Development Goals is widening, official development assistance has declined sharply. Driven by shifting global priorities and emerging crises, Development Assistance Committee (DAC) member countries disbursed 7.3% less ODA in 2024 than in 2023 , amounting to only 0.3% of donor countries’ gross national income — less than half of the internationally agreed aid target. This contraction represents a significant loss of low-cost development financing for many developing countries and risks pushing the most vulnerable into a deeper debt and development crisis.
Debt-related ODA fell to a record low of only $270 million in 2023, following a temporary rise during the G20 Debt Service Suspension Initiative period (2020–2021). Despite worsening debt sustainability across developing countries, aid for debt forgiveness, restructuring, rescheduling and refinancing has decreased significantly, and bilateral debt-for-development swaps have almost completely disappeared.
How UNCTAD helps to address debt and development challenges
UN Trade & Development (UNCTAD) plays a central role in helping developing countries to address the debt and development challenges through policy-oriented analysis, consensus-building facilitation and technical assistance. A core pillar of this work is the Debt Management and Financial Analysis System (DMFAS) Programme, which strengthens national capacities in public debt recording, monitoring and debt risk management. Effective debt management is essential to ensure countries can meet their debt obligations sustainably while making informed financial decisions — promoting transparency, fiscal sustainability and good governance.
In response to increasing complexity in debt portfolios, DMFAS 7 was launched in 2025, offering a more comprehensive and integrated solution to address countries’ evolving needs. Today, UNCTAD provides support to 63 countries, helping them better assess debt sustainability and manage associated risks.
UNCTAD also supports different United Nations-led policy initiatives to address developing countries’ debt and development challenges. These include the Pact for the Future, adopted by Member States in September 2024; the Expert Group on Debt appointed by the Secretary-General in December 2024; and the Fourth International Conference on Financing for Development, with its outcome document the Seville Commitment pointing the way to improved development finance, concluded in July 2025.
Policy recommendations
Achieving sustainable development while ensuring debt sustainability requires addressing both the cost and composition of existing debt. Reducing existing debt stocks where necessary is important, but mobilising additional long-term, affordable and stable financing remains essential to achieving the 2030 Agenda and closing the global financing gap.
UNCTAD puts forward the following policy recommendations across three levels of action:
Actions at the multilateral level:
- Scale up affordable financing by multilateral and regional development banks.
- Enhance the global financial safety net to make it more effective, accessible, and predictable for developing countries.
- Address the shortcomings of the G20 Common Framework for Debt Treatments.
- Reform debt sustainability analyses to make them sensitive to development-
- Create a borrower’s platform to serve as a venue for knowledge and experience sharing and elevate the collective voice of borrowers.
Actions at country level which require coordination, technical assistance and capacity-building:
- Increase technical assistance and capacity-building for debt management offices.
- Provide technical assistance to support investment pipeline development.
- Promote the development of low-cost foreign currency guarantees and other hedging and currency conversion mechanisms.
- Establish a debt-for-development swap platform that provides information and technical assistance for developing countries.
At the national level:
- Enhance the quality of investment project pipelines or country platforms.
- Reduce debt-swap transaction costs through scale and standardisation and align the associated key performance indicators with national development strategies.
- Improve the profile of existing debt stocks by changing the currency denomination, lowering its cost, and increasing its maturity.
- Enhance the communication strategy with investors and credit rating agencies.
- Market investment opportunities to non-traditional bilateral lenders.
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