Developing countries could save nearly $500bn a year if they borrowed at the same interest rates as advanced economies, UNCTAD says.
The UN agency says high borrowing costs are shrinking fiscal space and limiting investment in health, education, infrastructure and clean energy.
Between 2014 and 2024, government interest payments in developing countries rose by 102%, while revenues increased by only 39%.
Africa received just 10% of external financial inflows to developing countries between 2014 and 2024, despite accounting for 22% of the developing world’s population.
UNCTAD says lower borrowing costs could finance 375,000 schools, 1.3 million primary healthcare centres or 923GW of solar power capacity.
Developing countries could save nearly $500 billion annually if they were able to borrow at the same interest rates as developed economies, according to a new report by the United Nations Conference on Trade and Development (UNCTAD), which warns that high borrowing costs are undermining sustainable development and crowding out investments in health, education and clean energy.
The report finds that while developing countries increased domestic financing and investment over the past decade, access to external finance has weakened and become more expensive, leaving governments with less fiscal space to achieve the Sustainable Development Goals (SDGs).
Between 2014 and 2024, gross capital formation in developing countries increased by 45 per cent and domestic financing rose by 60 per cent. However, new external financial inflows from non-residents fell by 18 per cent during the same period.
The contribution of external financing to investment also declined sharply. In 2024, non-resident external sources financed only 11 per cent of gross capital formation in developing countries, down from 20 per cent in 2014. By comparison, developed countries received the equivalent of 38 per cent of their investment financing from external sources.
UNCTAD identifies rising debt servicing costs as the most pressing challenge facing developing economies.
Between 2014 and 2024, government interest payments in developing countries increased by 102 per cent, while government revenues rose by only 39 per cent. Interest payments grew 2.6 times faster than revenues, signalling a deterioration in debt sustainability.
As a result, 73 per cent of developing countries experienced a decline in fiscal space between 2018 and 2024, reducing governments' ability to fund development priorities.
In 2024, interest costs on external public and publicly guaranteed debt accounted for a median 59 per cent of total external interest costs across developing countries. External interest payments also represented 35 per cent of total government interest costs, exposing public finances to fluctuations in global borrowing conditions.
The report notes that debt servicing costs have increased much faster than debt stocks. Between 2014 and 2024, the servicing cost of external debt liabilities rose by 111 per cent, while debt stocks increased by 42 per cent.
According to the report, developing countries consistently face higher borrowing costs than advanced economies across all major financing instruments. Between 2014 and 2024, the median cost of servicing portfolio investment liabilities in developing countries averaged 5.2 per cent annually, more than double the 2.5 per cent paid by developed countries.
For direct investment, developing countries paid average returns that were 1.5 percentage points higher than those in developed economies. In some cases, investors earned exceptionally high returns, with 24 developing countries paying more than 10 per cent annually, 10 countries paying more than 20 per cent and four countries paying more than 33 per cent. Frontier market economies incurred the highest financing costs across both direct and portfolio investments, reflecting heightened investor perceptions of risk.
The report highlights major disparities in the distribution of international finance. Although Africa accounts for 38 per cent of developing countries and 22 per cent of the developing world's population, it received only 10 per cent of total external financial inflows to developing countries between 2014 and 2024.
By contrast, Asia and the Pacific attracted more than 70 per cent of inflows despite accounting for a similar share of developing countries. Latin America and the Caribbean received less than one-fifth of total inflows.
In 2024, developing countries collectively held $30.7 trillion in external liabilities, with 52 per cent comprising direct investment, 21 per cent portfolio investment and 27 per cent other forms of investment. Equity instruments accounted for 56 per cent of total liabilities, while debt represented 44 per cent.
UNCTAD finds that despite decades of financial integration, around half of all developing countries still lack significant access to international bond markets. Emerging market economies accounted for 87 per cent of sovereign bond issuance by value since 1990, while frontier market economies accounted for 12 per cent and other developing economies less than 1 per cent.
Africa remains particularly disadvantaged. Since 1990, the continent accounted for only 14 per cent of sovereign bond issuances and just 11 per cent of issuance value. Only 17 African countries accessed international bond markets over the past decade.
Although borrowing conditions improved in 2025, average sovereign bond yields for developing countries remained elevated at 5.7 per cent, compared with around 5 per cent before the COVID-19 pandemic. Frontier market economies and African countries continued to face borrowing costs close to 8 per cent.
The report estimates that 94 developing countries currently pay average effective interest rates of 5.5 per cent on public debt, compared with 2.2 per cent for a group of developed economies comprising the United States, Eurozone countries, the United Kingdom and Japan. If those 94 countries could borrow at the same average rate as developed countries, they would save approximately $500 billion every year in interest payments.
According to UNCTAD's estimates, those annual savings could finance around 375,000 schools serving 375 million students, 1.3 million primary healthcare centres, more than 65,000 kilometres of dual-carriage rural highways, or 923 gigawatts of installed solar power capacity. The same amount could also fund minimum dietary diversity programmes for about 1.6 billion children annually.
The report concludes that reducing borrowing costs is not simply a financial issue but a development imperative, arguing that high interest burdens are limiting fiscal capacity, constraining long-term public investment and threatening progress towards sustainable development goals.