A growing number of developing countries are at “severe risk” of defaulting on their external debt amid spiralling inflation, tightening financial conditions and a higher likelihood of a global recession.

The UN’s Conference on Trade and Development (Unctad) warned in a report published on October 3 that a significant number of both low- and middle-income countries have seen their debt servicing costs rise well above 20% of annual government revenues.


“The high likelihood of a global recession, a decline in global trade and commodity prices, and a sharp tightening of global financial and policy conditions [...] may push a substantial number of countries into debt distress”, an Unctad spokesperson tells fDi. “The risks faced by the global economy over the next 15 months appear to be considerably higher than in recent episodes of global financial stress.”

In late May 2022, the IMF assessed that 55% of the 69 low-income countries eligible for concessional financial support were at high risk of or already in debt distress — compared with just 30% in 2015. Debt distress is where countries are unable to fulfil their financial obligations, leading to debt restructuring. This in turn raises the risk of these countries facing higher borrowing costs and losing access to international capital markets. 

Back in 1980, the total debt of emerging market and developing economies stood at 65% of their gross domestic product (GDP), which already led to a debt crisis in Latin American and African countries, according to World Bank data cited by Unctad. By 2020, this debt-to-GDP ratio had reached 207%.

Unctad’s report notes that the share of government revenues allocated to the service public external debt has increased rapidly across the globe, including in sub-Saharan Africa, South Asia and Latin America. In 2020, Somalia was by far the worst performing country, with its servicing costs on external debt equivalent to 96.8% of its governmental revenue, followed by Sri Lanka (58.8%) and Angola (56.5%). 

Between 2010 and 2020, the number of countries that allocated more than 15% of government revenues to service external debt rose from 4 to 39, according to Unctad. 

“The challenges are mounting and causing an unprecedented developmental crisis that will see countries picked off and engulfed by debt and financial crisis, one by one, unless they can count on multilateral support to see them through and move forward on the path towards sustainable development,” said the Unctad spokesperson.


Unctad forecasts the world economy to grow by 2.5% in 2022, which is down from 5.8% in 2021. Global growth in 2023 is expected to decelerate further to 2.2%.