Policy Papers

Many emerging markets and developing economies face elevated debt vulnerabilities and financing needs. Following the 2020-21 surge in debt levels associated with the COVID-19 shock, and the subsequent tightening in global financial conditions, many emerging markets and developing economies (EMDEs)1 are grappling with rising debt service burdens that squeeze the space available for development spending. Pandemic-induced deficits have declined, and debt levels have stabilized and are projected to remain stable or slightly decline under staff’s baseline assumptions. However, many EMDEs are confronting high costs of financing, large external refinancing needs, and a decline in net external flows amid important investment and social spending needs. To help address these challenges, countries would benefit from actions, both at domestic and international level, to proactively expand their capacity to finance development spending. There are also important risks to the baseline that will require careful monitoring. This paper aims to help inform the international debate on these issues by providing factual data and insight on the debt vulnerabilities and financing pressures facing EMDEs.