Borrowers face debt squeeze as reform timetable stretches

UN debt advisers urge payment relief as developing economies face a $35 trillion borrowing burden and delays to financing reforms.

Developing economies’ government debt reached that level in 2025, increasing 10.5% from the previous year, according to an October 12, 2026, commentary by Paolo Gentiloni, Trevor Manuel and Mahmoud Mohieldin. The authors, co-chairs of the UN Secretary-General’s Expert Group on Debt, argue that governments need temporary relief before refinancing difficulties become an inability to repay.

Their proposal would give countries under acute financial pressure a mechanism to suspend payments, drawing on the pandemic-era initiative established by the G20. They also want multilateral development banks involved and more predictable access to concessional lending.

Refinancing costs squeeze public budgets

The authors distinguish the size of outstanding debt from the immediate difficulty of financing it. They warn that even a stable debt-to-GDP ratio offers limited protection when governments must replace maturing obligations with more expensive borrowing.

In their assessment, interest expenses are outpacing the growth of tax receipts and income from exports in many countries. They link additional pressure to conflict-related energy costs and inflation, while arguing that US government borrowing, AI companies’ bond issuance and defense budgets are increasing competition for financing.

The commentary identifies 32 low-income economies as already experiencing debt distress or facing a high risk of it. Negotiations with private lenders now require an average of two and a half years, double their pre-pandemic duration, the authors say.

For affected governments, the authors describe a choice between costlier refinancing and reductions in essential services and investment. They argue that cutting productive expenditure can weaken the future revenue and foreign-exchange earnings needed to repay creditors.

Sevilla instruments await wider adoption

The proposed emergency mechanism would supplement reforms agreed at the 2025 financing-for-development conference in Sevilla. The authors point to contractual payment pauses, debt swaps tied to development objectives and a Borrowers’ Platform intended to strengthen debtor countries’ representation.

The problem, they argue, is adoption rather than a complete absence of instruments. Citing their expert group’s October 2026 implementation report, they say these arrangements have not become routine, leaving countries exposed while contractual and legislative changes proceed.

The authors also recommend broader use of guarantees and financing that expands during downturns. For borrowing governments, they advocate stronger cash reserves, better debt management and, where feasible, borrowing across different currencies to address exchange-rate and rollover exposure.

Mid-2027 timetable leaves financing gap

According to the commentary, the IMF and World Bank have approved revisions to their framework for assessing debt sustainability in low-income economies. The changes would incorporate domestic borrowing and liquidity indicators, including financing requirements and interest costs relative to government revenue.

But the authors say implementation starts only in mid-2027 and excludes countries that ordinarily borrow in international markets. They urge the institutions to bring implementation forward and broaden coverage, distinguishing temporary cash shortages from debts that cannot sustainably be repaid.

Under the authors’ proposed approach, timely payment relief and concessional funding would preserve room for public investment while governments address financing gaps. If expensive refinancing persists instead, their warning is that budget reductions could weaken productive capacity and repayment prospects; the immediate test is whether creditors and institutions deliver relief before those pressures deepen.