Developing Countries Face Record Debt - US$29 Trillion Debt Raises Investment Challenges In These Countries
Developing countries, aware of a tumultuous 2025 ahead, must contend with rising interest payments on $29 trillion of debt that was created over the past decade.
A record 54 countries are spending more than 10% of their income on interest payments, according to the United Nations. Some, including Pakistan and Nigeria, are using more than 30% of revenue just to pay vouchers. The amount, about $850 billion total last year in both external and domestic debt, is forcing countries to divert money from domestic spending on hospitals, roads and schools, while raising risks for emerging market investors.
Donald Trump's impact on the outlook for US rates and the dollar, rising geopolitical tensions and concerns over the Chinese economy all set the stage for a difficult 2025.
However, emerging market watchers, including RBC BlueBay Asset Management and Morgan Stanley, do not expect any countries to default next year, largely because international institutions, including the International Monetary Fund, are stepping in, and international markets of capital have been reopened for some borrowers.
This reality has helped resolve debt negotiations that had stalled for years. Fewer countries are trading at distressed levels and some of the world's riskiest bonds, from Pakistan to Egypt, have beaten peers.
Emerging market debt has more than doubled over the past decade to about $29 trillion, most of which came from local borrowing, according to UNCTAD's annual debt report. This has left these countries burdened with huge interest payments, as well as maturing bonds that will have to be paid off or refinanced. Over the next two years, roughly $190 billion in foreign bond obligations are due, according to JPMorgan Chase & Co.
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