Government bond yields in advanced economies have climbed to multi-year highs, raising financing costs for many developing countries even where investors have become less worried about the borrowers themselves, the International Monetary Fund has warned.
The warning came in a statement by IMF Managing Director Kristalina Georgieva following a meeting of G20 finance ministers and central bank governors in Asheville, North Carolina.
The IMF said the global growth outlook for 2026 had firmed at about 3%. Yet high public debt, stalled disinflation in many countries and rising government borrowing costs continue to weigh on the outlook.
Developing economies face the added pressure of large refinancing needs. Refinancing occurs when a government issues new debt to repay bonds or loans that are reaching maturity. If market interest rates have increased, replacing the old debt becomes more expensive.
Lower risk premiums may not produce cheaper debt
A government bond yield is the return investors demand for lending to a country. For a dollar bond sold by an emerging-market government, the yield is often compared with a US Treasury benchmark. The additional return investors demand is known as the spread.
A narrowing spread normally indicates greater investor confidence. The IMF said some emerging markets had achieved this improvement, but the benefit had been more than offset by rising benchmark yields in advanced economies.
“As key advanced economy yields rise to multi-year highs, they lift most of the world’s yield curves up with them,” Georgieva said.
The total borrowing cost can still rise when investors demand a smaller country-specific premium. Better domestic finances and stronger market confidence do not necessarily translate into cheaper debt when the global benchmark is moving in the opposite direction.
Interest payments are taking more from public budgets
The IMF’s April 2026 Fiscal Monitor estimated that global public debt rose to just under 94% of gross domestic product in 2025. It forecast that the ratio would reach 100% by 2029.
Interest payments increased from 2% to nearly 3% of global GDP in four years as governments refinanced maturing debt at higher rates, according to the report.
The burden is already visible in lower- and middle-income economies. The World Bank’s International Debt Report 2025 found that their external-debt interest payments reached a record $415.4 billion in 2024, the second consecutive annual high.
Those countries paid $205.1 billion more in principal and interest than they received in new loans during 2024. It was their third consecutive year of net outflows.
The latest IMF statement said falling external finance was adding to the pressure, including cuts in official development assistance and lower lending from government creditors outside the Paris Club, an informal group of mainly advanced-economy lenders.
Infrastructure spending faces a tighter limit
Higher debt-service costs leave governments with less room for infrastructure, health and education. Reduced infrastructure spending can then weaken future growth, making the debt burden harder to reduce relative to the size of the economy.
The financing squeeze is especially relevant where poor transport links already restrict commerce. As we reported in our recent coverage of African trade, the World Bank identified weak infrastructure, customs delays and restrictions on services among the barriers raising the cost of trade across the continent.
The IMF called for faster debt restructuring where borrowing has become unsustainable, stronger debt transparency and reforms intended to attract private investment. It also urged advanced economies to set credible medium-term plans for controlling their own public finances.
For developing countries, the immediate problem is that domestic progress may deliver only part of the expected saving. If benchmark yields in the largest bond markets continue to rise, lower country risk can still leave governments paying more when they refinance.
