Developing countries are grappling with massive interest payments on a $29 trillion debt pile, accumulated over the last decade, with many diverting funds from essential services. The United Nations reports that a record 54 countries now spend over 10% of their revenues on interest, with some, like Pakistan and Nigeria, spending more than 30%.
This growing debt burden, coupled with $850 billion in annual interest payments, threatens to stall domestic investments in critical infrastructure such as healthcare and education. Despite a relatively calm 2024 without major defaults, experts warn that the risks remain high as bond maturities loom and the pandemic-era borrowings begin to come due.
While the International Monetary Fund (IMF) and international capital markets have helped avert defaults, the challenges ahead remain significant. Over the next two years, $190 billion in foreign bond obligations will need to be addressed. Some countries, such as Argentina and Angola, are seeking new or extended IMF programs to manage their debt loads.
Sovereign debt analysts predict more defaults in the coming decade due to rising borrowing costs, leaving emerging markets in a precarious position as they struggle to manage the growing interest burden.
The IMF’s continued involvement is seen as crucial in mitigating the risk of widespread debt defaults. However, the question remains whether emerging markets can sustain these growing interest payments and avoid another wave of financial instability.
Bloomberg reports that the debt crisis remains a significant concern for investors, especially in light of heightened geopolitical tensions, uncertainties surrounding U.S. monetary policy, and China’s economic slowdown, all of which could impact global market stability in 2025.
