Debt, fiscal space, and macroeconomic constraints

Debt positions have begun to stabilize, but high financing costs and constrained fiscal space continue to limit public investment. Public and publicly guaranteed external debt in EMDEs (excluding China) reached USD 3 trillion in 2024, and general government debt USD 10.9 trillion (IMF, 2026d). New borrowing from private creditors carried average interest rates of 5.9%, against 3.8% from official creditors, with average maturities of 10 years versus 22 (World Bank, 2026a). Of 144 EMDEs assessed, 59 remain fiscally constrained (Kharas and Sarkar, 2026), while recent tightening in global capital markets is making debt more expensive and raising refinancing risk (IMF, 2026c).

Restructuring processes have progressed and international coordination is improving, but recovery of fiscal space and investment capacity remains slow. Low-income countries in debt distress fell from 11 to nine between October 2024 and March 2026, while those at high risk fell only from 24 to 23 (IMF, 2026e). Chad, Zambia, and Ghana have completed G20 Common Framework treatment, with agreement in principle for Ethiopia (IMF, 2026f). Senegal held its first creditor meeting in October 2026 (Shalal A, 2026), and the revised LIC Debt Sustainability Framework is expected to become operational only in the second half of 2027 (IMF, 2026g).

Improvements remain uneven, with lower-income and climate-vulnerable countries facing the greatest fiscal constraints and the least protection against shocks. In 2024, 63 of 122 developing countries collected less than 15% of GDP in tax revenue (Sawadogo et al., 2026), including 19 of 22 low-income countries (IMF, 2026d). Fewer than 30 of over 200 countries assessed have standalone disaster-risk financing strategies (Glemarec et al., 2025). Climate-resilient debt clauses are available to 45 eligible countries through the World Bank and 12 through the IDB, but uptake remains limited (Cravero et al., 2025; World Bank, 2024a).

Debt stabilization and restructuring have reduced immediate pressures in some countries, but evidence of increased investment capacity remains limited. The median low-income country has more than halved its primary deficit from a pandemic peak above 3% of GDP, largely through expenditure-based consolidation rather than stronger revenues (Dielmann et al., 2025). Six major debt-for-nature swaps across five developing countries have retired around USD 5.45 billion in debt since 2020, though volumes remain small relative to needs. Debt-sustainability frameworks are being revised, but integration of investment benefits, public assets, and climate risks remains incomplete (IMF, 2026g; Laskaridis and Zha, 2025).