Developing Countries Pay $500 Billion Annually Extra Due to Higher Borrowing Costs

Developing countries could save nearly $500 billion annually if they could borrow at the same interest rates as advanced economies, according to a new UNCTAD report that warns high financing costs are shrinking fiscal space and limiting investment in health, education, infrastructure, and clean energy. Between 2014 and 2024, government interest payments in developing countries rose by 102 per cent while revenues increased by only 39 per cent.

The UNCTAD analysis finds that 94 developing countries currently pay average effective interest rates of 5.5 per cent on public debt compared with 2.2 per cent for a group of developed economies. The median cost of servicing portfolio investment liabilities in developing countries averaged 5.2 per cent annually between 2014 and 2024, more than double the 2.5 per cent paid by developed countries. Frontier market economies faced borrowing costs close to 8 per cent in 2025 even as conditions improved. In some cases, 24 developing countries paid more than 10 per cent annually and 10 countries paid more than 20 per cent.

The report identifies Africa as particularly disadvantaged: despite comprising 38 per cent of developing countries and 22 per cent of their population, Africa received only 10 per cent of total external financial inflows to developing countries between 2014 and 2024. By contrast, Asia and the Pacific attracted more than 70 per cent. As a result of widening debt service burdens, 73 per cent of developing countries experienced a decline in fiscal space between 2018 and 2024, constraining investment in climate adaptation, health systems, and education.

UNCTAD estimates that the $500 billion in annual savings could finance approximately 375,000 schools serving 375 million students, 1.3 million primary healthcare centres, more than 65,000 kilometres of rural highways, or 923 gigawatts of installed solar power capacity. The report concludes that reducing borrowing costs is a development imperative, not merely a financial reform, and calls for systemic reforms to international financial architecture that would lower risk premiums for developing economies.

Key figure — $500 billion annual savings if developing countries borrowed at developed-economy rates