A World of Debt: Why the Global Economy Is Entering a Critical Phase

Over the past decade, the role of debt has shifted from a catalyst for investment to a growing constraint that increasingly limits countries’ fiscal room to maneuver. Recent global shocks—from the pandemic to interest-rate tightening and geopolitical fragmentation—have amplified vulnerabilities, especially in developing economies. The charts provided help illustrate how this debt landscape has evolved and why it now poses systemic risks for growth, stability, and human development.

Global Public Debt Surges to New Heights

Global public debt surpassed $100 trillion in 2024, marking yet another record in a long upward trend. The slope of the line since 2010 shows that debt has grown at more than 5% annually, outpacing global GDP growth for much of the past decade. The drivers are well-known: governments increased borrowing to respond to crises, finance social protection, stabilize financial systems, and offset weak private-sector demand. But what is increasingly concerning is that interest rates have risen sharply since 2022, turning what used to be manageable debt loads into heavier fiscal burdens.

While all countries have accumulated debt, the pressure is especially acute for developing economies, whose financing costs have risen faster than those of advanced economies. High global interest rates, currency depreciation, and weaker export growth have combined to make servicing debt more difficult. As the chart shows, the absolute rise in global debt is not merely cyclical—it reflects structural weaknesses in the global financial system, where borrowing needs grow faster than countries’ capacity to generate revenue.

Developing Economies: Debt Growth Outpaces Economic Strength

The second chart highlights a striking divergence: since 2010, debt in developing countries has grown more than twice as fast as in advanced economies. Even when excluding China, the trend remains steep. For many developing countries, rising public debt has not been accompanied by corresponding growth in GDP, export earnings, or fiscal revenues. As a result, debt-to-GDP ratios remain high, and refinancing risks have increased.

Part of this dynamic reflects structural realities. Developing countries face more volatile capital flows, narrower domestic financial markets, and higher risk premiums. When global conditions tighten, they experience a disproportionate squeeze. Borrowing becomes more expensive precisely when they most need liquidity. This makes it harder to roll over existing obligations and more costly to pursue long-term development goals in health, education, and infrastructure.

Additionally, many governments have turned increasingly to foreign-currency borrowing, which exposes them to exchange-rate risks. When local currencies weaken—as they have in many emerging markets since 2021—the domestic burden of external debt rises automatically, even without new borrowing.

Growing Fiscal Pressures: More Countries Crossing the 60% Debt Threshold

The number of developing economies with public debt exceeding 60% of GDP has risen significantly over the past decade. This threshold is not a hard rule, but it is widely used as a marker of heightened debt vulnerability. The chart shows that by 2024, 58 developing countries were above this threshold, with the largest concentrations in Africa, Latin America, and parts of Asia.

This trend matters because countries with high debt ratios often face several constraints:

• Reduced fiscal space, as governments must allocate larger shares of revenue to interest payments.

• Higher refinancing risks, as investors demand higher yields to compensate for perceived risk.

• Limited ability to respond to external shocks, such as commodity price volatility, natural disasters, or sudden capital outflows.

• Pressure to cut essential spending, especially in health, education, and social protection.

The situation has escalated further as interest payments have grown faster than other public expenditures. In many countries, servicing debt now absorbs more resources than investments in human development and infrastructure.

Debt Service Burdens Are Rising—and Crowding Out Development

A growing share of developing countries now spends more than 5% of export earnings on external public debt service. This reflects both higher global interest rates and weakening export revenues. When so much foreign exchange is used to repay creditors, fewer resources remain for essential imports such as fuel, food, medicine, and capital goods.

Similarly, the share of government revenues devoted to interest payments has climbed sharply. In numerous developing economies, interest payments now exceed spending on health or education. This signals a turning point: the debt burden is no longer a macroeconomic issue alone—it is becoming a human development crisis.

The Global Debt System Needs Structural Reform

The trajectory shown in the charts underscores the need for a more resilient and equitable global financial system. Many countries are caught in a cycle where borrowing is expensive, growth is slow, and crises repeatedly erode hard-won development gains. Without reform, debt will continue to accumulate faster than the capacity to service it, pulling countries further away from sustainable development goals.

A more balanced system would expand access to affordable long-term financing, improve debt workout mechanisms, and strengthen global safety nets so countries are not forced to choose between repaying creditors and investing in their people.

Sources & References

IMF. (2025). International Debt Report 2025. https://www.worldbank.org/en/programs/debt-statistics/idr/products 

IMF. (2025). World Economic Outlook. https://www.imf.org/external/datamapper/datasets/WEO 

United Nations. (2025). A World of Debt. https://unctad.org/system/files/official-document/osgttinf2025d4_en.pdf