Developing Countries’ Debt Service Payments Exceed Financial Inflow For First Time: World Bank

Ethiopia’s income status ‘unclassified’ in 2025 debt report

For the first time in half a century, debt service expenditures by developing countries are exceeding the inflow of new financing, according to the World Bank’s 2025 International Debt Report.

It reveals that between 2022 and 2024, about USD 741 billion more flowed out of developing economies in debt repayments and interest than flowed into them in the form of new financing.

“It was the largest debt-related outflow in more than 50 years. The human toll has been steep: among the 22 most highly indebted countries, one out of every two people today cannot afford the minimum daily diet necessary for lasting health,” reads the new report.

It indicates that in 2024, the total external debt stock of low- and middle-income countries (LMICs) hit a new record of USD 8.9 trillion, 1.2 trillion of which was owed by the 78 most vulnerable countries eligible to receive grants and low-cost loans from the World Bank’s International Development Association.

These countries paid more than USD 415 billion in interest payments alone in 2024, according to the report.

“These payments are 2.4 times higher than a decade ago, driven mainly by a 4.5 percent increase from public sector borrowers, to USD 161.3 billion. This increase in interest payments has had severe consequences in high-debt countries, where on average more than half the population is already unable to afford a healthy diet,” it reads.

China, the largest debtor country among LMICs, accounted for 30.1 percent of LMICs’ interest payments on total debt stock, according to the report.

In 2024, LMICs paid out USD 205 billion more in principal and interest than they received in new loans, marking the third consecutive year of net outflows, according to the World Bank.

The report indicates that debt is now growing more slowly, and cited successful examples of debt restructuring in the cases of Ghana, Haiti, Somalia, and Sri Lanka.

“Progress, of course, is occurring, but it is modest, and considerably more is needed. Debt burdens are now growing more slowly. Creditors were in a forgiving mood last year: they agreed to restructure USD 90 billion in developing country debt, more than at any time since 2010,” it reads.

Elsewhere in the report, the World Bank notes that Ethiopia’s income classification is still in a temporary status of “unclassified” for fiscal year 2026.

“The World Bank still considers Ethiopia an IDA-only country, so the terms and conditions of World Bank financing for the country have not changed. Agencies using the World Bank income classification to determine access conditions to their own resources should still consider Ethiopia a low-income country,” it reads.

Ethiopia’s total external debt as at 2024 stood at USD 36.5 billion, up from USD 7.3 billion in 2010, and USD 30.6 billion in 2022, according to the WB report.