## ppea2025002

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---

### INTRODUCTION — Overview and purpose
- Many emerging markets and developing economies (EMDEs) face elevated debt vulnerabilities and financing needs following the 2020-21 surge in debt levels associated with the COVID-19 shock and subsequent tightening in global financial conditions.
- Pandemic-induced deficits have declined, and debt levels have stabilized and are projected to remain stable or slightly decline under staff’s baseline assumptions.
- Key challenges: high costs of financing, large external refinancing needs, and a decline in net external flows amid important investment and social spending needs.
- Purpose: provide factual data and insight on debt vulnerabilities and financing pressures facing EMDEs to inform the international debate.
- Prepared by Karim Foda under overall guidance of Karina Garcia; approved by Guillaume Chabert (SPR). Date: February 6, 2025.
- Perimeter: EMDEs = all countries not classified as high-income by the World Bank, excluding China and India, plus all countries classified as Small Developing States by the IMF. LICs within this group refer to PRGT-eligible countries.
- Note: 2024 values are estimates in figures referenced.

### EVOLUTION OF DEBT VULNERABILITIES — key facts and trends
- Public debt levels in EMDEs:
  - Remain elevated, have stabilized post-pandemic, and are expected to remain stable or decline slightly over the medium-term.
  - Median LIC primary fiscal deficit narrowed to about 1 percent of GDP, around its pre-pandemic levels.
  - Median emerging market economy (EM) primary deficits narrowed significantly and are close to balance.
- Historical LIC comparisons:
  - Median LIC debt-to-GDP about 55 percent today versus peak of about 70 percent in 1994.
  - For countries currently assessed at high risk or in debt distress: current median debt-to-GDP of 57 percent versus peak of 67 percent at the eve of the HIPC Initiative; median of the 39 HIPC countries then peaked at just below 90 percent of GDP.
- Systemic risk and DSA assessments:
  - Perimeter: 136 EMDE countries.
  - Only 12 LICs are in debt distress or have unsustainable public debt (LIC-DSF risk ratings as of December 2024).
  - 2 EMs are undergoing debt restructurings.
  - Share at high risk of external debt distress among LICs is now seven percentage points lower than its peak at the onset of the pandemic.
  - Nearly 30 percent of high-risk ratings (from LIC-DSAs through 2023) were driven predominantly by long-term breaches in solvency indicators or judgment reflecting longer-term considerations.
  - Share of countries at low and moderate risk has returned to pre-pandemic levels.
- Creditor composition and instruments (2010 to end-2023):
  - Share of external public debt held by commercial creditors and non-Paris Club official creditors rose from 22 percent to 38 percent.
  - For EMs, private and non-Paris Club bilateral financing share rose from 52 percent to 64 percent.
  - Reliance on domestic debt increased:
    - Median LIC increased its share of domestic public debt by nearly 9 percentage points since 2010.
    - Post-pandemic, median LIC’s domestic debt share increased by another 9 percentage points (or 6.5 percentage points of GDP).
    - Median EM domestic public debt increased by 8 percentage points of GDP in 2020 compared to a 3.6 percentage points of GDP increase in external public debt.
  - New debt instruments in LICs (guaranteed, securitized, collateralized contracts linked to PPPs, SOEs, pension/social security funds) expanded:
    - Total investments in PPPs in LICs rose from US$0.3 billion in 1994 to US$5.9 billion in 2021.
    - Number of PPP projects in LICs rose from 11 to 26 over the same period, most involving sovereign guarantees.

### CHALLENGES AHEAD — fiscal space, interest burdens, and market access
- Interest burden trends:
  - LIC interest bills rose from around $13 billion in 2014 to US$35 billion in 2024 — an increase of over two and a half times.
  - Pace of increase:
    - Averaging about US$3 billion more per year since 2021.
    - Averaging about US$1 billion more per year over 2014-16.
    - Over US$2 billion per year over 2017-20.
  - External debt service pressures for the median LIC rose from 6 to 16 percent of revenues (excluding grants) between 2014 and 2024.
  - Median EM spends over 12 percent of revenues (excluding grants) on servicing external debt, almost twice as high as a decade ago.
- Financing costs and market access:
  - Global financial conditions tightened in 2022; EMDE bond spreads rose and interest rates on new official and private external commitments increased.
  - By 2024, spreads generally declined to pre-pandemic levels for most countries, aiding some LICs’ return to international capital markets.
  - Funding costs remain well above pre-pandemic levels; interest burdens likely to continue rising as pre-pandemic debt needs are refinanced.
- Implications:
  - Tightened fiscal space has crowded out development and social spending as more revenue is allocated to interest payments.
  - Large external refinancing needs, high financing costs, and declining net external flows constrain capacity to finance development spending.
  - Addressing challenges requires domestic and international actions to expand capacity to finance development spending and careful monitoring of downside risks.

### RISING EXTERNAL REFINANCING NEEDS — magnitudes and composition
- LICs:
  - External principal payments exceeded US$20bn in LICs in 2023, more than three times higher than a decade ago.
  - More than three-quarters of these payments were due to official creditors; most of the remainder due to commercial lenders.
  - LICs’ external refinancing needs are set to exceed US$30 billion per year over 2025-27 based on existing stocks.
- EMs:
  - External principal payments reached USD$185bn in 2023.
  - Average annual gross flows of about US$350 billion per year to EMDEs will be needed just to maintain exposure to these countries over the next few years.
  - These required flows are broadly in line with flows observed during the COVID-19 crisis but notably above past gross flows, especially for LICs.
- Note: projections from 2024 onwards are based on debt contracted as of end-2023 and exclude countries currently undergoing a debt restructuring.

### COUNTRIES WITH LARGEST FINANCING CHALLENGES — categories, counts, and shares (2024-27)
- Focus: top quartile of overall interest costs, external principal repayments, and primary deficits over 2024-27, excluding countries already in distress.
- Categories and counts:
  - Volume (high external principal payments relative to revenues, excluding grants): eight LICs and six EMs; represent about 12 percent (USD$15 billion) of external principal payments coming due over 2024-27 among LICs and USD$27 billion among EMs.
  - Cost (high overall interest burdens but without high external amortizations relative to revenues): seven LICs and five EMs.
  - Volume and cost (both high external principal and overall interest payments relative to revenues): seven LICs and nine EMs. This group represents:
    - 16 percent (USD$435 billion) of overall (external and domestic) interest payments over 2024-27.
    - 25 percent (US$221 billion) of external principal payments over 2024-27.
- Regional distribution:
  - Sub-Saharan Africa: 22 countries among the highest groups; account for 44 percent of total interest payments across LICs over 2024-27 and 2 percent across EMs; account for 46 percent total external principal payments across LICs and 7 percent across EMs.
  - Latin America: higher relative concentration of countries with high overall interest burdens; some smaller countries face high external principal payments.
  - Middle East and Central Asia: many countries face high debt vulnerabilities.
  - Asia and the Pacific: many small island states account for a large share of countries with large primary deficits; others run high deficits alongside high domestic interest expenditures.

### DRIVERS OF HIGH INTEREST BURDENS AND DEBT SERVICE PRESSURES
- High interest-to-revenue ratios correlate with high average interest rates and low domestic revenue capacity.
  - Domestic interest rates reach up to 17 percent in some cases.
  - LICs with relatively high average rates on external debt around 3-4 percent, compared to LICs where a larger share of external financing is concessional.
  - Many of these LICs rank among the bottom quartile of tax-to-GDP ratios in LICs (well below 15 percent of GDP).
- Debt stocks interaction:
  - Only four LICs are in the upper quartile of public debt-to-GDP among LICs while having the highest interest burdens.
  - For some LICs, domestic debt is twice as high as external debt, reaching 40 percent of GDP in some cases, with domestic borrowing costs 2 to 3.5 times higher than on external debt.
  - Among EMs, several have both high interest burdens and relatively high public debt, but many have larger revenue bases and deeper financial markets mitigating acute vulnerabilities.
  - Only three EMs with high interest burdens have high debt levels and low revenue generating capacity.
- Domestic debt service pressures:
  - Median EM domestic debt service (interest and principal) to revenue ratio is about twice as high as the median LIC.
  - Some LICs’ domestic debt service burdens exceed those of most EMs, reaching nearly 100 percent of revenues (including grants) in some cases.
  - Since the pandemic, diminished access to external and concessional financing pushed many LICs to more expensive domestic financing, increasing sovereign-bank nexus risks and sometimes leading to domestic payments arrears.

### ROLLOVER PRESSURES, CREDITOR COMPOSITION OF AMORTIZATIONS, AND RECENT DYNAMICS
- Rollover pressures (median LIC with high external principal payments relative to revenues):
  - Principal payments to revenue ratio more than doubled since 2010 to about 13 percent in 2023.
  - Set to further increase by about 5 percentage points on average over 2024-27.
  - For other LICs, ratio of external amortization to revenues doubled between 2010 and 2023 and is expected to rise by almost a further 3 percentage points over 2024-27.
- LICs with highest external principal repayment burdens owe about one third of their principal payments over 2024-27 to private creditors, compared to 15 percent for all other LICs.
  - These LICs owe close to half of their external interest payments to private creditors versus about 20 percent in other LICs.
- EMs with highest external debt service to revenue owe over half of both their principal and interest to official creditors, compared to about 40 percent for median EMs.
  - Nearly 30 percent of their principal payments are due to bilateral official creditors, compared to 15 percent for other EMs.

### NET EXTERNAL FLOWS, FISCAL ADJUSTMENTS, AND OUTCOMES
- Net flows:
  - Over 2018-23, net flows from private commercial creditors to LICs with high external principal payments equaled around USD$28 billion, compared to USD$13 billion for all other LICs.
  - Private net flows to this LIC group have declined in recent years, partly offset by an increase in net flows from multilateral creditors.
  - Net flows from bilateral official creditors have also declined for this group and are generally relatively lower than for other LICs.
  - Among EMs with high external principal to revenue ratios, total net flows have declined by about 40 percent since 2021, largely driven by private creditors.
  - During this period, official creditors account for nearly 60 percent of net positive flows to these EMs, compared to around 35 percent of net flows to other EMs.
- Fiscal adjustments:
  - Countries with the highest principal payment burdens have been tightening fiscal positions to anchor debt levels and manage financing needs, particularly among LICs.
  - LICs with high external principal payments relative to revenues have undergone larger fiscal consolidations compared to other LICs.
  - As of 2024 estimates, the primary deficit to GDP ratio for the median LIC in this group remains larger than its pre-pandemic level, with many still undergoing consolidations but primary balances projected to reach near balance in coming years.
  - Among EMs, those with high external principal payments relative to revenues have adjusted post-COVID fiscal positions faster than other EMs, with the median country reaching a primary surplus by 2023.
- Risk assessments and outcomes:
  - Majority of countries with the largest financing needs are assessed as having moderate risks of debt distress (based on LIC-DSF or SRDSF recent assessments).
  - Among low-income countries with the relatively highest debt service burdens:
    - Nearly 60 percent (12 countries) assessed as low or moderate risk of overall debt distress (1 is low risk).
    - 20 percent (4 countries) are high risk but without protracted or near-term breaches of debt burden indicators.
  - Among EMs with the highest debt service burdens:
    - Over half (10 out of 18) assessed at overall moderate risk of sovereign stress.
    - 7 countries assessed at high-risk with varying degrees of liquidity and solvency risks.
  - Overall, countries have so far managed debt vulnerabilities often at the expense of large fiscal adjustments and resorting to more expensive sources of financing.

### POLICY PRIORITIES AND ROLE OF EXTERNAL SUPPORT
- Urgent actions for countries with highest debt servicing burdens:
  - Structural reforms to boost growth and exports to improve resilience and repayment capacity.
  - Strengthening revenue mobilization to create more fiscal space from within.
- Tax capacity and priorities:
  - Just over half of the 136 EMDEs (or 69 countries) have tax-to-GDP ratios below 15 percent.
    - Around 60 percent of these (41 countries) are LICs, the rest (28 countries) are EMs.
  - Among countries with low tax-to-GDP ratios, nearly 40 percent (27 countries) are EMDEs with high overall interest burdens, high external principal repayment burdens, or both.
  - A 15 percent tax-to-GDP ratio is identified as a minimum level typically associated with a significant acceleration in the process of growth and development.
- Role of external support and restructuring frameworks:
  - Improving fundamentals takes time and could be enabled with increased financing support from creditors and international partners.
  - Helping countries undertaking serious reform efforts meet financing needs would help offer needed fiscal space and avert broad distress events (referenced “3-pillar approach” proposed by the IMF and World Bank).
  - Progress on restructuring mechanisms is needed to ensure access to timely, reliable, and predictable restructuring processes if required.

*International Monetary Fund. February 6, 2025.*

### INTRODUCTION _____________________________________________________________________ 3

### INTRODUCTION

### Overview
- Many emerging markets and developing economies (EMDEs) face elevated debt vulnerabilities and financing needs following the 2020-21 surge in debt levels associated with the COVID-19 shock and subsequent tightening in global financial conditions.
- Pandemic-induced deficits have declined, and debt levels have stabilized and are projected to remain stable or slightly decline under staff’s baseline assumptions.
- Key challenges include high costs of financing, large external refinancing needs, and a decline in net external flows amid important investment and social spending needs.
- Purpose: provide factual data and insight on debt vulnerabilities and financing pressures facing EMDEs to inform the international debate.

### Prepared by / Approval
- Prepared by Karim Foda under the overall guidance of Karina Garcia.
- Data analytics and visualization support: Joyce Saito and Chen Chen.
- Administrative assistance: Claudia Isern and Eiman Afshar.
- Approved by Guillaume Chabert (SPR).
- Date: February 6, 2025.

### Perimeter and definitions (as used in the note)
- EMDEs: all countries not classified as high-income by the World Bank, excluding China and India, plus all countries classified as Small Developing States by the IMF.
- LICs within this group refer to PRGT-eligible countries.
- Note: 2024 values are estimates in figures referenced.

---

### EVOLUTION OF DEBT VULNERABILITIES

- Public debt levels in EMDEs:
  - Remain elevated, but have stabilized post-pandemic and are expected to remain stable or decline slightly over the medium-term.
  - For the median low-income country (LIC), the primary fiscal deficit has narrowed to about 1 percent of GDP, around its pre-pandemic levels.
  - For the median emerging market economy (EM), primary deficits have narrowed significantly and are close to balance.

- Historical comparison for LICs:
  - Median LIC debt-to-GDP about 55 percent today compared to peak of about 70 percent in 1994.
  - For countries currently assessed at high risk or in debt distress, current median debt-to-GDP ratio of 57 percent versus peak of 67 percent at the eve of the HIPC Initiative; median of the 39 HIPC countries then peaked at just below 90 percent of GDP.

- Systemic risk and DSA assessments:
  - Perimeter: 136 EMDE countries.
  - Only 12 LICs are in debt distress or have unsustainable public debt (based on LIC-DSF risk ratings available as of December 2024).
  - 2 EMs are undergoing debt restructurings.
  - Among LICs, the share assessed at high risk of external debt distress briefly increased at the onset of the pandemic but is now seven percentage points lower than its peak.
  - Nearly 30 percent of high-risk ratings (from LIC-DSAs through 2023) were driven predominantly by long-term breaches in solvency indicators or judgment reflecting longer-term considerations rather than near-term breaches.
  - The share of countries at low and moderate risk has returned to pre-pandemic levels.

- Key uncertainties and caveats:
  - Risks to the baseline include global growth, international financial conditions, exchange rate movements, weaker macro-structural policies, or combinations/successive shocks; if realized, these could turn current financing challenges into a broad debt crisis.
  - Assessment relies on available data; debt data limitations could result in underestimation of the scale of challenges.

- Evolution in creditor composition and instruments:
  - Since 2010 to end-2023, the share of external public debt held by commercial creditors (including bondholders and other private creditors) and non-Paris Club official creditors almost doubled from 22 percent to 38 percent.
  - For EMs, private and non-Paris Club bilateral financing share rose from 52 percent to 64 percent over the same period.
  - Shift toward private creditors and non-Paris Club creditors has increased access to finance but also greater and costlier debt service burdens; frontier markets' profiles have evolved closer to EMs.
  - Reliance on domestic debt has increased:
    - Since 2010, the median LIC increased its share of domestic public debt by nearly 9 percentage points.
    - Post-pandemic, the median LIC’s domestic debt share increased by another 9 percentage points (or 6.5 percentage points of GDP).
    - For the median EM, domestic public debt increased by 8 percentage points of GDP in 2020 compared to a 3.6 percentage points of GDP increase in external public debt.
  - New debt instruments in LICs (guaranteed, securitized, collateralized contracts linked to PPPs, SOEs, pension/social security funds) have expanded and tend to be riskier and harder to restructure:
    - Total investments in PPPs in LICs rose from US$0.3 billion in 1994 to US$5.9 billion in 2021 (about 17-fold).
    - Number of PPP projects in LICs rose from 11 to 26 over the same period, most involving sovereign guarantees.
    - These instruments may not immediately show in debt burden indicators but can create sudden vulnerabilities when guarantees/collateral are called.

---

### CHALLENGES AHEAD

- Fiscal space and interest burdens:
  - Interest payments on total public debt (external and domestic) have increased significantly, particularly for LICs.
  - LIC interest bills rose from around $13 billion in 2014 to US$35 billion in 2024 — an increase of over two and a half times.
  - Pace of increase:
    - Averaging about US$3 billion more per year since 2021.
    - Averaging about US$1 billion more per year over 2014-16.
    - Over US$2 billion per year over 2017-20.
  - External debt service pressures for the median LIC rose from 6 to 16 percent of revenues (excluding grants) between 2014 and 2024 — about two and a half times higher as a share of revenues.
  - Median EM spends over 12 percent of revenues (excluding grants) on servicing external debt, almost twice as high as a decade ago.

- Financing costs, spreads, and market access:
  - Global financial conditions tightened in 2022 as advanced economy central banks tightened monetary policy and EMDE bond spreads rose.
  - This led to a sharp rise in interest rates on new official and private external commitments for most EMDEs.
  - By 2024, spreads generally declined to pre-pandemic levels for most countries, aiding some LICs’ return to international capital markets.
  - However, funding costs remain well above pre-pandemic levels, implying interest burdens are likely to continue rising as pre-pandemic debt needs are refinanced.

- Implications:
  - Tightened fiscal space has crowded out development and social spending as an increasing share of revenues is allocated to interest payments.
  - Large external refinancing needs, high costs of financing, and declining net external flows constrain countries’ capacity to finance development spending.
  - Addressing these challenges requires actions both domestically and internationally to expand capacity to finance development spending and careful monitoring of downside risks.

---

*International Monetary Fund. February 6, 2025.*

### 10.      Meeting refinancing needs in the coming years will be challenging, with external

### 10.      Meeting refinancing needs in the coming years will be challenging, with external principal payments set to increase significantly

### Rising external refinancing needs
- External principal payments exceeded US$20bn in LICs in 2023, more than three times higher than a decade ago.
- More than three-quarters of these payments were due to official creditors, with most of the remainder due to commercial lenders.
- LICs’ external refinancing needs are set to exceed US$30 billion per year over 2025-27 based on existing stocks.
- Among EMs, external principal payments reached USD$185bn in 2023.
- Average annual gross flows of about US$350 billion per year to EMDEs will be needed just to maintain exposure to these countries over the next few years.
- These required flows are broadly in line with flows observed during the COVID-19 crisis but are notably above past gross flows, especially for LICs.
- Note on data: projections from 2024 onwards are based on debt contracted as of end-2023 and exclude countries currently undergoing a debt restructuring.

### Decline in net flows and implications for SDGs and climate finance
- Net external PPG debt flows to LICs have stagnated in recent years and even declined in 2021-22; larger multilateral contributions did not fully offset declines from private and bilateral creditors.
- Net external flows to EMs have fallen as private flows scaled back and bilateral official support diminished.
- The sharp decline in net flows limits scope to meet substantial investment needs to advance towards the Sustainable Development Goals (SDGs) and adapt to climate change.
- Competing financing demands from advanced economies increase the risk that EMDEs will fail to raise sufficient financing at an affordable cost, amid uncertainty about international financial conditions and exchange rate movements in 2025 and beyond.

### Countries with the largest financing challenges: categories and magnitudes (2024-27)
- Analysis focuses on countries in the top quartile of overall interest costs, external principal repayments, and primary deficits over 2024-27, excluding countries already in distress.
- Categories and counts:
  - Volume (high external principal payments relative to revenues, excluding grants): eight LICs and six EMs; these represent about 12 percent (USD$15 billion) of external principal payments coming due over 2024-27 among LICs and USD$27 billion among EMs.
  - Cost (high overall interest burdens but without high external amortizations relative to revenues): seven LICs and five EMs.
  - Volume and cost (both high external principal and overall interest payments relative to revenues): seven LICs and nine EMs. This group represents:
    - 16 percent (USD$435 billion) of overall (external and domestic) interest payments over 2024-27.
    - 25 percent (US$221 billion) of external principal payments over 2024-27.
- Many countries in these groups are constrained by combinations of low revenue generating capacity, high interest rates, and declining net flows, forcing tighter fiscal positions.

### Regional distribution of high financing-need countries
- Sub-Saharan Africa:
  - Twenty-two Sub-Saharan African countries are among the group with the highest total interest to revenues, external principal to revenues, or both.
  - They account for 44 percent of total interest payments across LICs over 2024-27 and 2 percent across EMs.
  - They account for 46 percent total external principal payments across LICs and 7 percent across EMs.
- Latin America:
  - Higher relative concentration of countries with high overall interest burdens relative to revenues; some smaller countries face high external principal payments.
- Middle East and Central Asia:
  - Many countries face high debt vulnerabilities.
- Asia and the Pacific:
  - Many small island states account for a large share of countries with large primary deficits; others run high deficits alongside high domestic interest expenditures.

### High borrowing costs and revenue constraints driving interest burdens
- Countries with the highest overall interest-to-revenue ratios tend to have the highest average interest rate costs and often the lowest domestic revenue capacity.
- Domestic interest rates reach up to 17 percent in some cases.
- LICs with relatively high average rates on external debt around 3-4 percent, compared to LICs where a larger share of external financing is concessional.
- Many of these LICs rank among the bottom quartile of tax-to-GDP ratios in LICs (well below 15 percent of GDP).
- Among EMs, some have high overall interest-to-revenue ratios but also large revenue bases and deeper financial markets, which mitigates acute financing vulnerabilities despite pressure on budgets.

### Debt stocks and the interaction with interest burdens
- A handful of LICs with the highest interest burdens also have relatively high public debt stocks; only four LICs are in the upper quartile of public debt-to-GDP among LICs.
- For some LICs, domestic debt is twice as high as external debt, reaching 40 percent of GDP in some cases, with domestic borrowing costs 2 to 3.5 times higher than on external debt.
- Among EMs, there is a larger occurrence of countries with both high interest burdens and relatively high public debt, although many have larger revenue bases and deeper financial markets.
- Overall, only three EMs with high interest burdens have high debt levels and low revenue generating capacity.
- Note: a 15 percent tax-to-GDP ratio is identified as a minimum level typically associated with a significant acceleration in the process of growth and development.

### Domestic debt service pressures
- Median EM domestic debt service (interest and principal) to revenue ratio is about twice as high as the median LIC.
- Some LICs’ domestic debt service burdens exceed those of most EMs, reaching nearly 100 percent of revenues (including grants) in some cases.
- Since the pandemic, diminished access to external and concessional financing pushed many LICs to more expensive domestic financing, increasing sovereign-bank nexus risks, pressuring social spending, and in some cases leading to domestic payments arrears accumulation.

### Rollover pressures and recent dynamics
- External principal payment burdens have grown significantly faster for some countries over the last decade, particularly among LICs.
- The median LIC with high external principal payments (relative to revenues) coming due over 2024-27:
  - Has seen its principal payments to revenue ratio more than double since 2010 to about 13 percent in 2023.
  - Is set to further increase by about 5 percentage points on average over 2024-27.
- For other LICs, the ratio of external amortization to revenues doubled between 2010 and 2023 and is expected to rise by almost a further 3 percentage points over 2024-27.
- Among EMs, the increase in external principal payments has been less divergent between more vulnerable and other EMs; the ratio to revenue for the median in both groups increased by more than 1.5 times since 2010.
- A notable acceleration for the more vulnerable EM group occurred in the pre-pandemic period before falling again, possibly explained by currency appreciation relative to the dollar as EMs tightened monetary policy sooner than advanced economies.

### Creditor composition of amortizations and implications
- LICs with the highest external principal repayment burdens owe about one third of their principal payments over 2024-27 to private creditors, compared to 15 percent for all other LICs.
- These LICs owe close to half of their external interest payments to private creditors (compared to about 20 percent in other LICs), highlighting significant cost of external private financing.
- EMs with the highest external debt service to revenue owe over half of both their principal and interest to official creditors, compared to about 40 percent for median EMs.
  - Nearly 30 percent of their principal payments are due to bilateral official creditors, compared to 15 percent for other EMs.
  - This concentration is driven by a handful of EMs that account for most of the volumes.

*Italic: Source: DEBT VULNERABILITIES AND FINANCING CHALLENGES IN EMDEs—AN OVERVIEW OF KEY DATA (selected excerpts).*

### 20.      Countries facing high external amortization pressures have seen a decline in external

### 20.      Countries facing high external amortization pressures have seen a decline in external

### Net external flows and creditor composition
- Over 2018-23, net flows from private commercial creditors to LICs with high external principal payments relative to revenues equaled around USD$28 billion, compared to USD$13 billion for all other LICs.
- In recent years, private net flows to this group have declined, partly offset by an increase in net flows from multilateral creditors.
- Net flows from bilateral official creditors have also declined for this group and are generally relatively lower than for other LICs.
- Among EMs with high external principal to revenue ratios, total net flows have declined by about 40 percent since 2021, largely driven by private creditors.
- During this period, official creditors account for nearly 60 percent of net positive flows to these EMs, compared to around 35 percent of net flows to other EMs.

### Fiscal adjustments in response to large external amortizations
- Countries with the highest principal payment burdens have been tightening fiscal positions to anchor debt levels and manage financing needs, particularly among LICs.
- LICs with high external principal payments relative to revenues (excl. grants) have undergone larger fiscal consolidations compared to other LICs.
- As of 2024 estimates, the primary deficit to GDP ratio for the median LIC in this group remains larger than its pre-pandemic level, with some variation; many are still undergoing consolidations with primary balances projected to reach near balance in coming years.
- Among EMs, those with high external principal payments relative to revenues (excl. grants) have adjusted post-COVID fiscal positions at a faster rate than other EMs, with the median country reaching a primary surplus by 2023.

### Countries facing heightened debt service pressures and structural weaknesses
- Countries that rank among the highest in both external principal payments and overall interest payments relative to revenues (excl. grants) face combined pressures from refinancing needs and high average costs of financing.
- External debt levels are not relatively high for many in this group, falling below the upper quartiles of LICs and EMs, and fiscal adjustments have narrowed primary deficits to pre-pandemic levels in several cases.
- Among LICs:
  - About 40 percent of high external principal to revenue countries have high overall interest-to-revenue ratios, tax-to-GDP ratios below 15 percent, and do not have relatively high external debt levels.
  - These LICs account for about one fifth of total LIC external principal payments and nearly one quarter of total overall interest payments.
- Among EMs:
  - There is a higher tendency for countries with high external amortization burdens to have high external debt levels alongside relatively high revenue bases and financing capacity.
  - About one third of EMs that have both high external amortization and high overall interest burdens also face low tax revenue generating capacity.

### Risk assessments and recent outcomes
- The majority of countries with the largest financing needs are assessed as having moderate risks of debt distress (based on either LIC-DSF or SRDSF recent assessments).
- Among low-income countries with the relatively highest debt service burdens:
  - Nearly 60 percent (12 countries) are assessed as having low or moderate risk of overall debt distress (1 is low risk).
  - 20 percent (4 countries) are high risk but without protracted or near-term breaches of debt burden indicators.
- Among EMs with the highest debt service burdens:
  - Over half (10 out of 18) are assessed at overall moderate risk of sovereign stress.
  - 7 countries are assessed at high-risk with varying degrees of liquidity and solvency risks.
- Overall, countries have so far managed debt vulnerabilities, often at the expense of large fiscal adjustments and resorting to more expensive sources of financing.

### Scope to increase domestic fiscal space and policy priorities
- Just over half of the 136 EMDEs (or 69 countries) have tax-to-GDP ratios below 15 percent.
  - Around 60 percent of these (41 countries) are LICs, and the rest (28 countries) are EMs.
- Among countries with low tax-to-GDP ratios, nearly 40 percent (27 countries) are EMDEs with high overall (domestic + external) interest burdens, high external principal repayment burdens, or both.
- For countries with the highest debt servicing burdens, urgent actions include:
  - Structural reforms to boost growth and exports to improve resilience and repayment capacity.
  - Strengthening revenue mobilization to create more fiscal space from within.
- Exports and international reserve coverage have deteriorated faster for LICs with high external amortization obligations relative to revenues, with the median export base in this group falling below the median for all LICs over time despite higher international reserve coverage than the full LIC sample.

### Role of external support and restructuring frameworks
- Efforts to improve fundamentals take time to bear fruit and could be enabled with increased financing support from creditors and international partners.
- Helping countries undertaking serious reform efforts meet their financing needs would help offer needed fiscal space and avert broad distress events (see the “3-pillar approach” proposed by the IMF and World Bank).
- Progress on restructuring mechanisms is needed to ensure access to timely, reliable, and predictable restructuring processes if required.

*International Monetary Fund (chapter excerpt).*

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_Source: https://www.imf.org/-/media/files/publications/pp/2025/english/ppea2025002.pdf_