Costlier debt servicing undermines the achievement of the SDGs

06/03/201926/06/2025 sonia

SDG indicators

Goal 17: Partnerships for the goals

Target 17.4: Assist developing countries in attaining long-term debt sustainability through coordinated policies aimed at fostering debt financing, debt relief and debt restructuring, as appropriate, and address the external debt of highly indebted poor countries to reduce debt distress.
Indicator 17.4.1: Debt service as a proportion of exports of goods and services (Tier I)

The external debt of developing economies reached $11.7 trillion in 2024.

Amid global uncertainty and recurring external shocks, the cost of capital for developing countries has risen, undermining their capacity to achieve . High debt costs are draining vital public resources needed for development. In this context, the development crisis continues to intensify, particularly in and . To salvage the 2030 Agenda, an ambitious and comprehensive multilateral response is essential -—
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The external debtExternal debt is understood as outstanding amount of those actual current, and not contingent, liabilities that require payment(s) of principal and/or interest by the debtor at some point(s) in the future and that are owed to nonresidents by residents of an economy -—
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—-. of developing economies reached $11.7 trillion in 2024, up from $11.4 trillion in 2023. Even though the value of total external debt continues to rise, the pace of that increase has slowed significantly since the COVID-19COVID-19 is an infectious disease caused by the strain of coronavirus SARS-CoV-2 discovered in December 2019. Coronaviruses are a large family of viruses which may cause illness in animals or humans. In humans, several coronaviruses are known to cause respiratory infections ranging from the common cold to more severe diseases such as Middle East Respiratory Syndrome (MERS) and Severe Acute Respiratory Syndrome (SARS). The most recently discovered coronavirus causes coronavirus disease COVID-19 -—
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—-. pandemicCommonly described by the WHO as ‘the worldwide spread of a new disease’, no strict definition is provided. In 2009, they set out the basic requirements for a pandemic: • New virus emerges in humans
• Minimal or no population immunity
• Causes serious illness; high morbidity/mortality
• Spreads easily from person to person
• Global outbreak of disease.
The US Centre for Disease Control uses a similar approach, but with a reduced set of criteria. It is very difficult to gauge whether the spread of a disease should be termed an outbreak, epidemic or pandemic. In other words, when to declare a pandemic isn’t a black and white decision -—
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—-., leading to moderate annual growth of 2.6% in 2024 – less than a third of the long-term average annual growth rate (8.4%) prior to the pandemic.

Figure 1. Debt servicing costs have risen sharply for the poorest economies

Long-term external public and as a percentage of exports of goods and services ( 17.4.1)

Source: UNCTAD calculations based on -—
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Note: Values in 2024 are estimated.

LDCs increased debt service ratio in 2024 most pronouncedly, reaching 13.5%.

For developing economies as a group, the ratio of debt service on long-term external PPGPublicly guaranteed debt (PPG) is an external obligation of the private sector, the servicing of which is contractually guaranteed by a public unit resident in the same economy as the debtor -—
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—-. Unless otherwise indicated, only long-term debt (maturity of more than one year) is included. debt to exports has been on an upward trend since 2010 (figure 1). The increase was particularly pronounced for the poorest: in 2024, the ratio was 13.5% for LDCs as a group, more than three times as high as in 2010 (3.5%) and also significantly higher than before the pandemic (9.7% in 2019). For the group of SIDS excluding Singapore, a group of particularly climate-vulnerable economies, this ratio increased sharply in 2020 as a result of decreasing services exports mainly due to falling tourism at the times of the lockdowns. After returning to its pre-pandemic level, the indicator has increased again since 2022, primarily due to higher debt servicing costs.

Figure 2. External debt has become more expensive to service, especially for low-income economies

Ratio of external debt service to external debt by income groups (percentage)

Notes: Values in 2024 are estimated. Groups follow -—
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—- classification by income level.

Low income countries experiencing sharpest rise in external debt service, reaching 10.5% of their debt in 2024.

The ratio of external debt service to external debt – which considers the impacts of both maturity and interest costs – has been on a rising trend in the groups of the low, lower-middle and upper-middle income developing economies over the past decade (figure 2). The ratio was highest for upper-middle income economies, reaching 15.2% in 2024, as compared to 9.9% in 2014. Lower-middle income economies recorded a steady increase after the pandemic, with total external debt service rising to 12.5% of total external debt in 2024, up from 10.3% in 2020. The increase over the past decade was most pronounced in low income developing economies where this ratio rose from 3.8% in 2014 to 10.5% in 2024.

References

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