Developing nations from Nigeria to Pakistan, already set for a turbulent 2025, are having to cope with ballooning interest payments on $29 trillion of debt that built up over the last decade.
A record 54 countries are spending more than 10% of their revenues on interest payments, according to the United Nations. Some, including Pakistan and Nigeria, are using more than 30% of revenue just to pay coupons.
The interest payments of around 850 billion in total last year for both foreign and local debt — is forcing countries to divert money from domestic spending on hospitals, roads and schools while raising risks for emerging-market investors.
“Interest burdens are massive,” Roberto Sifon-Arevalo, global head of sovereign ratings at S&P Global Ratings, said. “There’s a lot of muddle through, but there’s a tremendous amount of risk.”
Global investors are already yanking their money, with outflows from vehicles focusing on hard-currency EM debt this year topping $14 billion, according to EPFR data compiled by Morgan Stanley.
Emerging-market debt has more than doubled over the past decade to roughly $29 trillion, most of which came from local borrowing, according to UNCTAD’s annual debt report.
That’s left them saddled with big interest payments as well as bond maturities that will either need to be paid or refinanced. Over the next two years, roughly $190 billion of obligations comes due on foreign bonds, according to JPMorgan Chase & Co.
Already some of the riskiest countries are paying more than 9% coupons to tap international debt markets and roll over maturities.
Nigeria this month raised $2.2 billion with its first eurobond sale since February 2022.
Africa’s biggest oil producer offered two maturities: a 6.5-year note that priced at 9.625%, and a 10-year issue that sold at 10.375%.
S&P analysts wrote in a report last month that they expect more defaults over the next decade than in the past, due to debt levels and the cost of borrowing. The World Bank also recently warned of record-high interest payments by poor countries.
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