Developing countries are under growing fiscal strain as interest payments on government debt rise nearly three times faster than revenue growth, according to a new report by the United Nations Conference on Trade and Development (UNCTAD).
The report shows that between 2014 and 2024, government interest payments in emerging economies increased by 102 per cent, compared to revenue growth of just 39 per cent, deepening pressure on already constrained public finances.
“Consequently, 73 per cent of developing nations lost fiscal space between 2018 and 2024,” the report notes.
This shrinking fiscal room has limited governments’ ability to invest in critical sectors such as education, healthcare and infrastructure.
UNCTAD further warns that financing development is becoming increasingly difficult as external financial flows remain costly, volatile and insufficient to meet rising needs linked to the Sustainable Development Goals (SDGs).
Between 2018 and 2024, 99 developing countries, home to about 5.5 billion people, saw rising interest payments reduce the share of revenue available for development spending, highlighting the widespread nature of the crisis.
In 2024 alone, developing countries received about $1.5 trillion (Sh194.3 trillion) in external financial inflows, while domestic financing stood at around $11.9 trillion (Sh1,543.2 trillion).
Despite this, UNCTAD notes that external financing still plays a disproportionately influential role in shaping economic conditions.
Africa, however, received only 10 per cent of total external inflows to developing economies, despite accounting for 22 per cent of the developing world’s population.
Asia and the Pacific attracted more than 70 per cent, underscoring regional disparities in access to capital.
The report further highlights that if borrowing conditions matched those of developed economies, 94 developing countries could save about $500 billion (Sh64.8 trillion) annually in interest payments, funds that could otherwise finance approximately 375,000 schools and over 1.3 million primary health clinics.
Nevertheless, the report notes that addressing the crisis will require coordinated national reforms and international action.
It recommends that developing countries strengthen macroeconomic frameworks, improve institutional quality and enhance public debt management to reduce financing risks.
The report also urges governments to diversify their economies, expand domestic and local currency financing, improve debt transparency and make greater use of innovative instruments such as green bonds and debt-for-development swaps to broaden funding sources.
At the global level, the agency is calling for increased affordable financing from multilateral development banks, stronger technical assistance and enhanced financial safety nets for vulnerable economies.
It also advocates reforms to debt restructuring mechanisms and a reversal of declining official development assistance, arguing that coordinated international action is essential to lower borrowing costs, expand access to long-term capital and support sustainable development goals.
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