Debt service payments outpacing aid, investments in developing countries

Net financing flows to developing countries remain precariously low, propped up by international aid and concessional loans according to new analysis from The ONE Campaign.  

Many countries are already walking a financial tightrope. And, with looming aid cuts and lack of access to capital, it’s likely to get worse, fast. Here’s a look at the numbers: 

• Net debt flows have been negative since 2022 – meaning overall, low- and middle-income countries are sending more money to creditors than they are receiving in new loans.   

• Developing countries’ debt levels have more than doubled since 2009, and the cost of servicing that debt has skyrocketed. Developing countries (excluding China, Russia, and Ukraine) paid $311 billion in debt service in 2023 and this figure is expected to balloon to $414 billion in 2024. 

• Inflows to developing countries are on the decline. Chinese lending to Africa dropped from a peak of $41.8 billion in 2018 to $12.3 billion in 2023, accounting for a 70% decrease from its 2018 peak. Additionally, private lending flows to developing countries have halved from a high of $252 billion in 2017 to $152 billion in 2023, as higher interest rates keep many countries from accessing new private finance. 

• 35 countries are in or at high risk of debt distress. Debt servicing puts a significant burden on low- and middle-income countries, where borrowing rates are 2 to 4 times higher than those of the United States and 6 to 12 times higher than those of Germany.   

• Making matters worse, in 2024, global aid levels dropped by 7%, and are projected to drop even further as more than nine donors have announced significant cuts over the coming years, including the US, UK, France and Germany. ONE’s own analysis, based on data from SEEK, projects cuts of at least 23% by 2027. 

As the World Bank/ IMF Spring Meetings kick off in Washington, D.C., ONE is urging the swift implementation of key reforms to lower the cost of capital, advancing multilateral development bank reform, prioritization of concessional finance for low-income countries, and accelerating sustainable debt relief.  

“Global leaders must work diligently to unlock shared progress by dismantling the barriers that limit capital flows and trap countries in a vicious cycle of debt. This isn’t just about charity and justice, it is also about achieving shared prosperity,” said Ndidi Okonkwo Nwuneli, CEO and President of ONE. “Too many countries are spending more on debt payments than on investing in infrastructure for energy access, educating children or providing health care. Global leaders must leverage these Spring Meetings to reaffirm commitments to true partnership and win-win investments, so that hard-won progress is not lost.” 

“As this year’s World Bank/IMF Spring meetings commence, one thing is clear – we are witnessing a dramatic shift in internationalism: trade tariffs are up, international aid is down, and global debt is dangerously high,” said Sara Harcourt, Senior Director of Development Finance at ONE. “Low- and middle-income countries are shouldering the biggest burden, still reeling from the economic impact of COVID and the war in Ukraine, countries are struggling to pay their debts and access new capital to build resilience to future shocks. As the world’s financial leaders convene to discuss solutions, debt relief and reforms to lower the cost of capital must be at the top of the agenda.”