Nigeria has been identified among emerging economies (EM) facing heightened debt vulnerabilities as interest service costs across EM climbed to their highest level in two decades.

The revelation came from Oxford Economics, which warned that countries combining heavy debt burdens, political risks and weak external positions remain vulnerable despite improvements in overall sovereign risk.

In a new research briefing, the global advisory firm said interest service costs across emerging markets reached 11.1 per cent of government revenue in 2025, the highest level in 20 years.

The figure marks a 6.1 percentage point increase over the past 15 years, reflecting growing debt burdens and the sharp rise in bond yields.

The report, authored by Oxford Economics’ Head of Global Emerging Markets, Gabriel Sterne, and Senior Emerging Markets Economist, Evghenia Slepsova, however, noted that rising borrowing costs have not translated into a similar increase in sovereign risk.

“The good news is that overall sovereign risk has not risen as quickly and remains below its 2022 peak,” the economists said.

According to the report, stronger institutions, healthier external balances and deeper domestic financial markets have helped cushion the impact of rising debt servicing costs across many emerging economies.

“Elevated debt service is being partially offset by EMs’ improved institutions, stronger external balances, and deepening domestic financial markets, enabling a safer debt composition,” the report stated.

Oxford Economics also argued that stronger nominal economic growth has helped improve debt sustainability by reducing some of the pressure inflation places on debt service ratios.

It said faster nominal GDP growth has partly offset inflation’s adverse effect on debt servicing, allowing many countries to maintain manageable debt paths.

“Taking this into account, a small primary deficit remains sufficient to reduce the debt-to-GDP ratio over time across 46 larger economies,” the economists noted.

Even so, the report cautioned that high interest payments are leaving many governments with shrinking fiscal space, meaning they may have fewer resources available to respond to economic shocks or finance development priorities.

It added that although debt crises may be avoided in many cases, persistently high debt servicing costs would require years of difficult fiscal adjustment.

The economists said the greatest concern lies in countries where elevated debt servicing is combined with political and geopolitical risks as well as fragile external positions.

“We are concerned that many sovereigns face a mix of political and geopolitical risk alongside high debt service,” they said.

They singled out Egypt, Nigeria, Kenya and Pakistan as economies where these vulnerabilities overlap.

“Egypt, Nigeria, Kenya, and Pakistan stand out: each pairs maximum debt service scores with high political risk and stretched external positions, a combination that has historically presaged distress,” the report stated.

The report concluded that while emerging markets as a group have become more resilient than in previous years, governments with rising debt servicing costs and limited fiscal buffers remain exposed to renewed economic and financial pressures if existing risks intensify.