Developing nations are entering 2025 with the unenviable task of juggling soaring interest payments on a staggering $29 trillion in accumulated debt, much of it racked up during the past decade’s binge of borrowing. For 54 countries, over 10% of revenues are now swallowed by interest payments—Pakistan and Nigeria, among others, dedicate more than 30%.
In raw numbers, that’s about $850 billion redirected last year from pressing domestic needs—like hospitals, roads, and schools—toward keeping creditors happy. The result? Strained government budgets and frayed nerves for emerging-market investors. The interest burdens are massive, and the risks are enormous.

As if managing colossal debts weren’t challenging enough, emerging markets face a tumultuous year ahead. Donald Trump’s return promises uncertainty around U.S. interest rates and the dollar. Add to this the spectre of escalating geopolitical tensions and an underwhelming Chinese economy, and the scene is set for a volatile 2025.
Global investors aren’t waiting to see how this all unfolds. According to Morgan Stanley, over $14 billion has already flowed out of hard-currency emerging-market debt funds this year. Yet, against this gloomy backdrop, a curious resilience persists: despite the turmoil, 2024 passed without a single sovereign default—a feat largely attributed to bailouts from international institutions like the IMF and reopened capital markets for select borrowers.

This tentative stability has enabled long-stalled debt negotiations to move forward. Countries like Pakistan and Egypt have seen some of their riskiest bonds outperform, while high-yield emerging-market debt has delivered outsized returns compared to its investment-grade peers. But as the pandemic-era borrowing spree matures, repayment deadlines loom ominously.
According to JPMorgan Chase & Co., about $190 billion in foreign bonds will need refinancing in the next two years alone. The IMF, already stretched thin, faces mounting pressure to step in as more nations, from Argentina to Angola, flirt with the possibility of renegotiation or outright default.

For now, high-interest payments are the price many countries must pay to access international markets. But how long can this precarious balancing act last? Analysts at S&P foresee an uptick in defaults over the next decade as rising borrowing costs push fragile economies to the brink. Meanwhile, the World Bank warns of record-high interest obligations among low-income nations.
Even some of the “success stories” reveal cracks beneath the surface. Argentina, the IMF’s perennial debtor, must contend with $9 billion in interest and principal repayments on hard-currency bonds in 2025 alone. The IMF has already extended lifelines to Sri Lanka and Pakistan, reducing their debt burdens significantly this year. However, such measures are Band-Aids for systemic problems that seem only to grow more complex.

As investors eye 2025, the question isn’t just whether countries can survive the short-term pressure but also whether they can withstand the long haul. The UN estimates emerging-market debt has more than doubled over the past decade, with much of it stemming from local borrowing. Meanwhile, risky borrowers are already paying upwards of 9% on international debt, a cost that raises eyebrows and red flags alike.
The stage is set for more defaults, IMF rescues, and uncertainty. Emerging markets may have dodged disaster in 2024, but the bills are piling up—and 2025 might not be so forgiving.

The IMF will undoubtedly remain pivotal in this high-stakes drama, as 27% of emerging-market debt is already tied to the fund. However, even the IMF’s patience and resources have limits, mainly as wealthy nations grow weary of underwriting endless bailouts.
For now, governments, investors, and international institutions are locked in a dangerous dance of mutual dependence.