Developing countries paid out $741 billion more in principal and interest on their external debt than they received in new financing between 2022 and 2024—the largest gap in at least 50 years, according to the World Bank’s latest International Debt Report released today.

Still, most countries gained some breathing room on their debt last year as interest rates peaked and bond markets opened up again. That enabled many countries to stave off the risk of default by restructuring their debt. In all, developing countries restructured $90 billion in external debt in 2024, more than any time since 2010.

Bond investors, meanwhile, pumped in $80 billion more in new financing than they received in principal repayments and interest. This helped several complete multi-billion-dollar bond issuances. However, the funds came at a high price—interest rates hovered around 10%, about double those before 2020.

“Global financial conditions might be improving, but developing countries should not deceive themselves: they are not out of danger,” said Indermit Gill, the World Bank Group’s Chief Economist and Senior Vice President for Development Economics. 

“Their debt build-up is continuing, sometimes in new and pernicious ways. 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.”

In 2024, the combined external debt of low- and middle-income countries hit an all-time high of $8.9 trillion—with a record $1.2 trillion owed by the 78 mainly low-income countries eligible to borrow from the World Bank’s International Development Association (IDA), the new report shows. The average interest rate that developing economies will pay to their official creditors on their newly contracted public debt in 2024 stood at a 24-year high. The average paid to private creditors was at a 17-year high.

In all, these nations paid a record $415 billion in interest alone—resources that could have gone to schooling, primary healthcare, and essential infrastructure. For instance, an average of one out of every two people in the most highly indebted countries was unable to afford the minimum daily diet necessary for long-term health.

Low-cost financing became harder to obtain, except from multilateral development banks such as the World Bank, which was the single-largest provider of financing for IDA-eligible countries. In 2024, the World Bank provided a record $18.3 billion more in new financing to IDA-eligible countries than it received in principal and interest payments. It also provided a record $7.5 billion in grants to these countries.

Official bilateral creditors—mainly governments and government-related entities—retreated after participating in a wave of restructurings that cut the long-term external debt of some countries by as much as 70%. In 2024, bilateral creditors took in $8.8 billion more in principal and interest than they disbursed in new financing for developing countries.

With options for low-cost financing dwindling, many developing countries turned to domestic creditors—local commercial banks and financial institutions. Of 86 countries for which domestic-debt data are available, more than half saw their domestic government debt grow faster than external government debt.

“The rising tendency of many developing countries to tap domestic sources for their financing needs reflects an important policy accomplishment,” said Haishan Fu, the World Bank Group’s Chief Statistician and Director of its Development Data Group. “It shows their local capital markets are evolving. But heavy domestic borrowing can spur domestic banks to load up on government bonds when they should be lending to the local private sector. Domestic debt also comes with shorter maturities, which can raise the cost of refinancing. Governments should be careful not to overdo it.”

The report also offers troubling new insights into how high debt levels have affected the daily lives of people in developing countries.

It finds that among the 22 most highly indebted countries—those whose external debt stock exceeds 200% of export revenue—an average of 56% of the population is unable to afford the minimum daily diet necessary for long-term health. Eighteen of these countries are IDA-eligible countries, where nearly two-thirds of the population cannot afford the necessary diet.