Why is the Cost of Borrowing for Developing Countries so high?

Ishac Diwan and Brendan Harnoys-Vannier

No 2514, FDL Policy Notes from CEPREMAP

Abstract: Over the past decade, borrowing costs for Low- and Lower-Middle-Income Countries (LLMICs) have risen sharply. In 2015, their Eurobond spreads were broadly in line with those of Upper-Middle-Income Countries (UMICs). Today, LLMICs’ spreads are three times higher and far more volatile—placing them in a separate asset class. This divergence raises urgent questions: Why has market confidence in LLMICs deteriorated so much? And why is the gap with UMICs widening, even though both groups face the same global shocks—such as the COVID-19 pandemic and rising U.S. interest rates?

Keywords: external debt; debt distress; agency costs; inflexible debt; credit heterogeneity; overshooting; investment and growth (search for similar items in EconPapers)
Pages: 33 pages
Date: 2025-09
New Economics Papers: this item is included in nep-fdg
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Persistent link: https://EconPapers.repec.org/RePEc:cpm:notfdl:2514

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