The Evolution of Public Debt Vulnerabilities in Lower Income Economies - Executive Summary - January 2, 2020

Jul 19, 2026

Public debt in lower-income economies has risen in recent years, leaving half of the covered countries at high risk of, or already in, debt distress. Debt accumulation has slowed since 2017, yet non-oil exporters face continued increases in debt-to-GDP ratios driven by more commercial borrowing, weaker interest-growth dynamics, and large primary deficits. Financing access has expanded, but reliance on commercial or near-commercial terms increases exposure to interest rate, exchange rate, and rollover risks.

LanguageEnglish

CategoryResearch & Report

FormatPDF

Pages58

Reading Time2 h 26 min

AccessFree to download

Executive Summary

Motivation and Objectives

Evolution of Debt and Debt Vulnerabilities in Lower-Income Economies

Debt Developments and Vulnerabilities

Debt Structure

Creditor Composition

Structure of Debt Portfolio

Outlook and Risks

Debt Projections and Risks

Outlook for the Structure of Debt

Management of Debt Vulnerabilities

Debt Management Capacity

Improvement in Debt Transparency

Operational Strategies to Manage Debt Risks

Debt Resolution: Developments

Conclusion and Policy Recommendations

References

Annex I. Country Coverage, Data Sources, and Debt Coverage

Annex II. LIEs’ Evolving Access to Eurobond and Local Currency Bond Markets

Box 1. Debt Developments after HIPC/MDRI Debt Relief

Public Disclosure Authorized Public Disclosure Authorized INTERNATIONAL DEVELOPMENT ASSOCIATION INTERNATIONAL MONETARY FUND THE EVOLUTION OF PUBLIC DEBT VULNERABILITIES IN LOWER INCOME ECONOMIES January 2, 2020 Prepared by the staffs ofthe World Bank Group and the International Monetary Fund Approved by Marcello Estevão (WB) and Seán Nolan (IMF) The World Bank team was led by Luca Bandiera and included Sebastian Essl, Diego Rivetti, Yuto Kanematsu, Zeljka Sedlo, and Ying Li under the overall guidance of Doerte Doemeland. The IMF team was led by Dalia Hakura and included Narcissa Balta, Amr Hosny, Mike Li, Keiichi Nakatani, Yahia Said, and Modeste Some (all SPR), and Dimitris Drakopoulos, Rohit Goel, Thor Jonasson, James Knight, and Miriam Tamene (all MCM), under the overall guidance of Mark Flanagan. Research assistance was provided by Samuel LaRussa and Joyce Saito. EXECUTIVE SUMMARY Public debt in lower-income economies (LIEs) has risen in recent years, with half of the countries covered in this report now assessed to be at high risk of or already in debt distress. The pace of debt accumulation has slowed somewhat since 2017, helped by gradual recovery in oil-exporting LIEs. But debt-to-GDP ratios have continued to rise in non-oil exporting LIEs, reflecting increased commercial borrowing, which worsened interest-growth differentials, and large primary deficits. Accommodative global financial conditions and expanded funding from non-Paris Club creditors have allowed LIEs to mobilize larger volumes of external financing. Expanded access to credit has provided opportunities for borrower countries to accelerate development, provided that the additional funding is used effectively. But increased reliance on funding on commercial or near-commercial terms has raised the exposure of LIEs to interest rate, exchange rate, and rollover risks. Also, recent experience indicates that the increasingly diverse creditor base and types of debt instruments used can complicate (and lengthen) the process of debt restructuring, where such restructuring is needed. Rising debt servicing costs, now at multi-year highs, are diminishing already constricted fiscal space. Staffs’ projections point to a gradual decline in debt levels over the next five years, but these projections in many cases, are dependent on ambitious fiscal adjustment and growth assumptions (a feature also observed in IMF (2018a)) . There are also downside risks to the projections from potentially weaker global growth and rising protectionism, which would reduce demand for LIEs’exports. Important gaps with respect to debt management and debt data transparency remain. Evaluations by World Bank staff point to some improvement in debt management strategies in recent years, while several LIEs have expanded debt coverage to include guarantees and contingent liabilities and have improved public debt reporting. But many countries still have much to do in expanding the coverage of public sector debt data and in improving debt management governance. The multi-pronged approach (MPA) provides a framework for the IMF and the World Bank to help LIEs address debt vulnerabilities and close these gaps. Countries with significant debt burdens face a difficult trade-off between scaling up public investment to meet ambitious development objectives and containing debt vulnerabilities. Higher inflows of ODA (official development assistance), coupled with efforts to boost domestic revenue mobilization, attract more foreign direct investment and improve spending efficiency can ease this trade-off, but the fundamental tension will likely remain in many, if not most, LIEs. Amid diminishing fiscal space and increasing debt vulnerabilities, countries need to create room to implement countercyclical fiscal policy in the face of shocks. Policy priorities for LIEs include mobilizing additional domestic revenues, improving spending efficiency and public investment management, and

FAQs

What is the main finding about public debt in lower-income economies?

Public debt has increased, and about half of the covered countries are assessed to be at high risk of, or already in, debt distress.

Why do debt-to-GDP ratios keep rising for non-oil exporting economies?

They rise due to increased commercial borrowing, which worsens interest-growth differentials, alongside large primary deficits.

What risks increase when countries rely more on commercial or near-commercial financing?

Reliance on such terms raises exposure to interest rate, exchange rate, and rollover risks.

Jul 19, 2026

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