External debt burdens across the developing world have climbed to a record, with low- and middle-income countries owing $8.9 trillion in 2024 and facing a wave of refinancing through 2027 that could sharply raise borrowing costs.
The numbers
According to recent assessments, external debt across low- and middle-income countries reached a record $8.9 trillion in 2024, while interest payments climbed to an all-time high of $415 billion. The combination strains fiscal space precisely as more countries confront elevated default risk, leaving fewer resources for health, education and investment.
The refinancing wall
Around 20% of the US dollar-denominated debt issued by emerging market and developing economies matures by 2027, with higher-risk countries facing a share exceeding 25%. Refinancing that debt at current market rates would likely mean a significant rise in borrowing costs that persists over the life of the new bonds.
- Record external debt stock of $8.9 trillion.
- Interest payments at a high of $415 billion.
- Roughly a fifth of EMDE dollar debt maturing by 2027.
Currency strategies
Some emerging economies are issuing more non-dollar debt to reduce foreign-exchange risk, in certain cases at higher overall cost. Analysts note that local-currency volatility is now comparable to, or even lower than, that of G10 currencies, suggesting improved currency stability for some borrowers. Shifting issuance away from the dollar can shield budgets from exchange-rate swings, though it can raise nominal yields demanded by investors.
Default cycle
Despite the strains, some investors argue default rates have peaked for emerging-market sovereigns and corporates, which could support performance if resilient exports, falling inflation and accommodative policy persist into 2026. That more constructive view rests on continued access to capital markets and stable commodity revenues.
What to watch
The interplay between maturing debt, market interest rates and currency choices will determine which sovereigns face the tightest squeeze. Multilateral lenders and creditor groups continue to weigh restructuring frameworks for the most stressed economies, including efforts to coordinate official and private creditors. The pace of global rate moves will be pivotal, since even modest changes in benchmark yields translate into large differences in refinancing costs at this scale.
Pressure on fiscal space
The strain shows up most clearly in national budgets, where rising interest bills compete with spending on essential services and development. When a large share of revenue goes to servicing debt, governments have less room to respond to shocks, invest in infrastructure or cushion their populations during downturns. For the most exposed economies, the risk is a self-reinforcing cycle in which higher borrowing costs deepen fiscal stress, which in turn raises the cost of future borrowing.
For investors, the picture is mixed: a high debt stock and refinancing wall on one side, and a maturing, more diversified asset class on the other. The balance between those forces will shape returns and stability across emerging-market debt through the rest of the decade. Much will depend on the path of global interest rates and on whether stressed sovereigns can secure orderly restructurings when needed.