Emerging debt challenges for developing countries: apparent easing, persistent fragilities. Lessons from the new World Bank International Debt Statistics 2025

Ishac Diwan, Melina London and Thomas Morgan

No 2604, FDL Policy Notes from CEPREMAP

Abstract: While external debt indicators improved for many low- and lower-middle-income countries in 2024, aggregate trends mask growing divergence. Using a framework that distinguishes between insolvency and illiquidity risks, we identify three groups of countries: those regaining market access at high cost, those facing persistent liquidity shortages without market access, and those in outright insolvency. This paper shows that bond market access has become a key divider, providing temporary relief but increasing future debt-service burdens. Meanwhile, multilateral financing is increasingly used to offset creditor retrenchment and service existing debt rather than support investment, while foreign-exchange constraints are emerging as a central feature of debt distress. These findings have important implications for debt restructuring, concessional finance, and the design of policy responses across the liquidity-solvency spectrum.

Keywords: Sovereign debt; Liquidity constraints; Insolvency; Leakages; Vulnerabilities; Low-income countries (search for similar items in EconPapers)
Pages: 22 pages
Date: 2026-03
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Persistent link: https://EconPapers.repec.org/RePEc:cpm:notfdl:2604

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