Rising borrowing costs are putting increasing pressure on developing countries’ public finances, with governments diverting more resources towards debt servicing at the expense of healthcare, education and other development priorities.

A new report by the United Nations Conference on Trade and Development (UNCTAD) said developing countries paid almost $1 trillion in net interest on public debt in 2025, nearly three times the $363 billion recorded in 2010.

The report, published under UNCTAD’s World of Debt series, warned that the rising cost of borrowing was undermining the ability of developing economies to finance critical investments and sustain development.

According to the report, 3.7 billion people live in 51 developing countries where interest payments on public debt exceed government spending on either health or education.

UNCTAD said the situation reflected a broader shift in the role of external borrowing, as debt that should provide resources for development was increasingly absorbing resources through debt servicing.

“Debt should help countries invest in their future. But in many developing countries, the servicing of external debt now exceeds new inflows,” the report stated.

Since 2022, interest payments on external public debt have exceeded net new lending to developing countries, meaning external borrowing is no longer generating additional resources for development.

Instead, the report said, developing countries were becoming increasingly reliant on domestic borrowing, which often comes at higher costs.

UNCTAD said global public debt reached $111 trillion in 2025, up from $49 trillion in 2010.
Although developed economies account for more than two-thirds of the global public debt stock, debt has increased significantly faster in developing countries.

The report also highlighted a persistent disparity in borrowing costs between developed and developing economies.

Developing countries paid an average interest rate of 5.2 per cent on public debt between 2010 and 2025, compared with 2.2 per cent in developed economies.

UNCTAD said narrowing the borrowing-cost gap could deliver significant financial gains for developing countries.

If developing economies were able to borrow at rates comparable to those available to developed countries, they could save an estimated $500 billion annually in interest payments.

The savings, according to the report, could finance about 1.3 million primary healthcare centres or provide a minimum-diversity diet for around 1.6 billion children yearly.

UNCTAD said the growing debt burden was therefore not only a fiscal challenge but also a major constraint on governments’ ability to meet development targets.

To address the problem, UNCTAD called for stronger international and national measures to reduce borrowing costs and improve debt sustainability.

At the global level, it urged countries to reverse declines in official development assistance, expand lending by multilateral and regional development banks, and increase technical assistance to strengthen national debt-management capacities.