Developing economies paid nearly $1 trillion in net interest on public debt during 2025, as borrowing costs significantly outpaced those in wealthier nations. This fiscal pressure is forcing governments to prioritize debt repayment over essential services like healthcare and education. The trend highlights a growing systemic risk that could impact long-term economic stability and global growth prospects.
A new report by the United Nations Conference on Trade and Development (UNCTAD) has highlighted a major financial challenge for developing nations, which paid approximately $995 billion in net interest on public debt in 2025. This figure represents a nearly threefold increase from 2010 levels, reflecting the rising cost of borrowing for these economies as global public debt surged to $111 trillion.
The core of the problem lies in the widening disparity between borrowing costs for developing nations and those in developed economies. Developing countries are currently facing an average interest rate of 5.2 percent on their debt, while developed nations enjoy an average rate of 2.2 percent. This gap acts as a structural barrier to growth, making it increasingly difficult for these governments to manage their finances sustainably.
For 51 countries, home to roughly 3.7 billion people, the impact on national budgets is severe. In these nations, the amount spent on servicing public debt now exceeds total government expenditure on primary health or education. Instead of directing revenue toward long-term development, infrastructure, or social services, a significant portion of national income is being funneled into interest payments.
This fiscal pressure has created a cycle where external debt service payments have outpaced net new lending since 2022. As a result, governments are increasingly relying on domestic borrowing to bridge the gap. However, domestic debt often comes with more restrictive terms and higher costs, further reducing the cash available for critical public investment.
Analysts suggest that if these nations were able to access capital at rates comparable to those in developed economies, they could save roughly $500 billion annually. These redirected funds could have significantly bolstered human capital, potentially funding millions of primary healthcare clinics or addressing essential nutritional needs for over a billion children.
The global economic situation remains a primary monitorable for investors and policymakers. The ongoing trend of high debt servicing costs versus productive investment threatens to erode human capital and stifle economic progress in many emerging regions. Looking ahead, the stability of these economies will likely depend on global efforts to restructure debt, improve access to affordable financing, and create more sustainable fiscal environments to prevent a long-term erosion of growth potential.