DEVELOPING countries paid nearly Sh130 trillion in interest in 2025 as expensive borrowing squeezes resources for healthcare, education and infrastructure.
According to UN Trade and Development (UNCTAD), rising borrowing costs are threatening development across the world, with developing countries spending an increasing share of public resources servicing debt, instead of investing and other essential services.
In its latest World of Debt publication, UNCTAD says developing countries paid nearly $1 trillion (about Sh129.5 trillion) in net interest on public debt in 2025, almost three times the $363 billion (Sh47 trillion) paid in 2010.
The report highlights the growing financial pressure on governments that must meet debt obligations while addressing infrastructure gaps, unemployment and rising demand for public services.
“Debt should help countries invest in their future. But in many developing countries, the servicing of external debt now exceeds new inflows,” UNCTAD says.
Since 2022, interest payments on external public debt have exceeded net new lending to developing countries, meaning more resources are going towards servicing existing obligations than are coming in through fresh financing.
The trend is forcing governments to rely increasingly on domestic borrowing, which can raise financing costs and leave fewer resources available for development.
UNCTAD estimates that global public debt reached $111 trillion (about Sh14,374.5 trillion) in 2025, up from $49 trillion (Sh6,345.5 trillion) in 2010.
Although developed economies hold more than two-thirds of the global debt stock, borrowing has increased much faster in developing countries.
The report identifies a significant disparity in financing costs. Developing countries paid an average interest rate of 5.2 per cent on public debt, compared with 2.2 per cent in developed economies.
This means developing countries pay more than twice the average interest rate borne by developed economies, despite often having fewer financial resources and greater development needs.
UNCTAD says narrowing the borrowing-cost gap between developing and developed economies could save developing countries an estimated $500 billion (Sh64.75 trillion) annually in interest payments.
The report estimates that such savings could finance about 1.3 million primary healthcare centres or provide a minimum-diversity diet for approximately 1.6 billion children annually.
The rising cost of borrowing is increasingly affecting governments’ ability to provide essential public services.
In 51 developing countries, home to 3.7 billion people, interest payments on public debt exceeded government spending on health or education, according to UNCTAD.
The findings illustrate how debt servicing can compete directly with investments needed to improve human capital, productivity and long-term economic growth.
The pressure is particularly acute for countries that depend on external financing to bridge budget deficits, fund infrastructure and support social programmes.
Kenya faces similar challenges as its public debt and financing obligations place pressure on government finances.
The country’s total public and publicly guaranteed debt stood at approximately Sh13.1 trillion by mid-2026.
Domestic debt accounted for about Sh7.33 trillion, while external obligations stood at approximately Sh5.77 trillion.
Domestic borrowing represents roughly 56 per cent of the total, with the balance comprising external loans from multilateral and bilateral lenders as well as commercial creditors, including Eurobond investors.
The debt composition exposes Kenya to different financing risks. Heavy domestic borrowing can constrain private-sector access to credit, while external obligations expose the government to foreign-exchange risks when the shilling weakens against currencies in which loans are denominated.
The challenge for the National Treasury is to meet repayment obligations while preserving resources for infrastructure, healthcare, education and other development priorities.
For the 2026-27 financial year, Kenya is projected to spend approximately Sh1.25 trillion to Sh1.29 trillion strictly on public debt interest payments, out of a total debt service package of Sh2.3 trillion to Sh2.31 trillion (which includes principal redemption).
UNCTAD is urging international financial institutions and governments to address structural factors that make borrowing more expensive for developing economies.
Its recommendations include reversing declines in official development assistance, expanding lending by multilateral and regional development banks, and increasing technical assistance to strengthen national debt-management capacity.
At the national level, the agency calls for stronger macroeconomic management and public institutions, improved debt-portfolio structures and greater use of innovative financial instruments.
For countries such as Kenya, these measures point to the importance of managing borrowing costs, improving the composition of public debt and ensuring that borrowed funds support productive investments capable of generating economic returns.
Stronger debt management would also require careful assessment of repayment obligations, currency exposure and the long-term benefits expected from publicly financed projects.
The report comes as developing countries seek greater influence over international debt discussions through the Borrowers’ Platform, an initiative led by member states and supported by UNCTAD.
The platform enables borrowing countries to share experiences, exchange technical knowledge and strengthen their collective voice on debt-related issues.w
A ministerial-level meeting scheduled for this week in Bangkok, during the IMF-World Bank Annual Meetings, is expected to convene the platform’s Governing Council for the first time and launch its full operational phase.
The initiative is intended to provide a forum for peer learning, knowledge-sharing and capacity-building as developing countries confront mounting debt pressures.
UNCTAD argues that addressing the debt challenge requires action at both global and national levels, including more affordable financing, stronger public institutions and improved debt management.
