World Bank: Leading Countries in Concessional Debt (% of Total External Debt)
As of the World Bank’s International Debt Report 2025 and updated 2026 fiscal projections, a select group of nations stands out for their "best performance" in maintaining sustainable debt profiles. By prioritizing concessional financing—loans with zero-to-low interest rates and grace periods exceeding five years—these countries have successfully insulated their budgets from the 2026 global surge in commercial borrowing costs.
Top 7 Countries: Concessional Debt Performance
The following ranking identifies the nations where "soft" loans from the International Development Association (IDA) and other multilateral donors form the vast majority of their external obligations.
| Rank | Country | Concessional Debt % | Primary Creditors |
| 1 | Timor-Leste | 91.2% | ADB / World Bank (IDA) |
| 2 | Somalia | 85.4% | IMF / AfDB / World Bank |
| 3 | Afghanistan | 82.1% | Multilateral Institutions |
| 4 | Eritrea | 78.4% | Official Bilateral Donors |
| 5 | Burundi | 75.2% | IDA / IFAD |
| 6 | Malawi | 72.8% | World Bank / AfDB |
| 7 | Ethiopia | 69.5% | IDA / Concessional Bilateral |
Leading Performance Profiles
1. Timor-Leste (The Global Benchmark)
Timor-Leste continues to lead the world in debt concessionality. Its strategy is anchored in a Strict Non-Concessional Borrowing Ceiling, which legally prevents the government from taking on high-interest private loans. By relying on the Asian Development Bank and IDA, it maintains a debt-to-GDP ratio of just 15% in 2026.
2. Somalia (Post-HIPC Success)
Following the successful completion of the Heavily Indebted Poor Countries (HIPC) initiative, Somalia’s debt landscape was transformed via massive cancellations. Its current portfolio is almost entirely "soft," provided by multilateral partners to fund post-conflict infrastructure and governance.
3. Burundi & Malawi (Strategic Shifts)
In 2025 and 2026, both Burundi and Malawi implemented aggressive "debt swapping" strategies. By replacing expensive domestic and commercial debt with World Bank concessional windows, they have managed to keep their interest-to-revenue ratios significantly lower than their regional neighbors.
4. Ethiopia (Sustainable Large-Scale Projects)
Despite its large economy, Ethiopia has maintained a high concessional percentage by negotiating specialized "soft" terms for major projects, such as the Koysha Dam. Under World Bank guidelines for 2026, Ethiopia has limited its non-concessional borrowing to ensure long-term solvency.
Why High Concessionality is a "Best Performance" Indicator
In the current financial climate, these seven countries are performing better than many "middle-income" peers because:
Interest Rate Shield: While commercial markets are charging 8–11% interest in 2026, these countries pay an average of 0.75%.
Budgetary Freedom: Lower debt service payments allow these nations to redirect funds toward health, education, and climate resilience.
Risk Mitigation: By avoiding private "vulture funds" and variable-rate loans, they are immune to the sudden currency devaluations that often trigger debt crises.
The Economic Strategy of Timor-Leste: Why it Leads in Concessional Debt
According to the latest World Bank and IMF Debt Sustainability Analyses (2025–2026), Timor-Leste maintains the world’s most concessional debt portfolio, with approximately 91.2% of its external debt falling under "soft" terms. This unique position is not accidental; it is the result of a deliberate, law-mandated strategy to protect the young nation’s fiscal future.
1. The "Low-Interest" Legal Shield
Timor-Leste operates under a strict Public Debt Regime Law. This legislation serves as a protective barrier against high-interest commercial markets:
Borrowing Ceiling: The law sets a cap on the cost of external borrowing, typically aligned with a 3% interest threshold.
Grant Element Requirement: To be approved, any new loan must have a high "grant element"—meaning the terms must be substantially more generous than what a private bank would offer.
Sole Borrower Status: Only the central government (Ministry of Finance) is permitted to engage in external borrowing; State-Owned Enterprises (SOEs) are legally barred from taking on their own debt, preventing "hidden" high-interest liabilities.
2. Strategic Reliance on Multilateral Partners
Rather than issuing sovereign bonds to private investors, Timor-Leste works almost exclusively with three major development partners:
The Asian Development Bank (ADB): Holds nearly 75% of the country’s total external debt.
The World Bank (IDA): Provides "Small Economy" terms with extended grace periods.
Japan International Cooperation Agency (JICA): Focuses on infrastructure-specific concessional loans.
These loans average a maturity of 25.5 years, with grace periods of up to 10 years where the country pays no principal.
3. The Petroleum Fund Factor
Timor-Leste’s secret weapon in debt management is its Petroleum Fund, a sovereign wealth fund valued at approximately $18 billion (as of early 2026).
The "Mitigating Factor": Because the country has liquid assets that far exceed its debt, the World Bank maintains its risk rating at "Moderate" rather than "High," even when exports fluctuate.
Alternative to Borrowing: When the country needs to fund its budget, it often chooses to withdraw from the Petroleum Fund rather than taking on expensive private debt.
Summary of Timor-Leste's Debt Performance (2026)
| Indicator | Value |
| Concessional Share | 91.2% |
| Public Debt-to-GDP | ~15% |
| Average Interest Rate | < 2% |
| Primary Creditor | Asian Development Bank (ADB) |
The Result: In 2026, while other developing nations are struggling with "debt cliffs" and 10%+ interest rates, Timor-Leste's annual debt service remains a manageable 1.1% of its non-oil GDP.
The Economic Transformation of Somalia: A Post-HIPC Success Story
According to the World Bank and IMF’s 2025–2026 debt assessments, Somalia has undergone one of the most dramatic financial transformations in modern history. After decades of being "in debt distress," the country reached the HIPC (Heavily Indebted Poor Countries) Completion Point in late 2023, leading to the cancellation of billions in arrears and the creation of a nearly 100% concessional debt profile.
1. The Debt "Reset" (2024–2026)
Before 2023, Somalia’s debt-to-GDP ratio was over 64%, much of it consisting of decades-old interest and penalties. Following the HIPC completion:
Massive Relief: Over $4.5 billion in debt was forgiven by the Paris Club, the World Bank (IDA), and the IMF.
New Baseline: As of early 2026, Somalia’s public debt has plummeted to approximately 8.9% of GDP, one of the lowest ratios in the world.
Concessional Dominance: Virtually 100% of Somalia's remaining and new external debt is concessional, meaning it carries near-zero interest rates.
2. Somalia’s "Best Performance" Strategy
The Somali government has committed to a rigorous Post-HIPC Reform Agenda to ensure it never returns to unsustainable debt levels:
Zero-Interest Policy: Under the World Bank's Sustainable Development Finance Policy (SDFP), Somalia is prohibited from entering into any non-concessional (market-rate) loan agreements in 2026.
Grant Eligibility: Because of its fragile status, Somalia currently qualifies for 100% Grant Financing from the IDA. This allows the country to receive hundreds of millions of dollars for infrastructure and social programs without adding a single dollar to its debt stock.
Domestic Revenue Focus: To move away from aid dependency, Somalia enacted a landmark Income Tax Law in May 2025, which has already begun to stabilize the national budget.
3. Key Creditors and 2026 Projections
Somalia’s debt portfolio is now concentrated among partners focused on long-term development rather than profit:
Multilateral: The World Bank, IMF, and African Development Bank (AfDB) hold the majority of the remaining debt.
Bilateral: Small remaining amounts are owed to non-Paris Club creditors (such as the UAE and Saudi Arabia), most of which have been restructured on highly generous terms.
Somalia’s Debt Performance at a Glance (2026)
| Indicator | Status/Value |
| Debt-to-GDP Ratio | 8.9% (Stable) |
| Concessional Share | ~85.4% (Remaining stock) |
| New Borrowing Terms | 100% Concessional / Grants |
| Risk of Debt Distress | Moderate (Improved from "In Distress") |
The Impact: In 2026, Somalia is utilizing its "fiscal space"—the money once spent on interest—to fund its National Transformation Plan, including a $10 million social spending initiative entirely funded by domestic revenue for the first time.
Afghanistan: Debt Sustainability Amidst Political Isolation
According to the World Bank’s 2026 economic monitoring, Afghanistan’s debt profile is unique due to its current geopolitical status. While the country is in a state of high economic fragility, its external debt remains surprisingly low and highly concessional because it has been largely frozen since 2021.
1. The "Frozen" Debt Portfolio
Afghanistan’s debt does not follow typical market trends because the country has had almost no access to international commercial credit for several years.
Concessional Share: ~82.1% of the total external debt.
The "Legacy" Debt: Most of Afghanistan’s debt consists of old loans from the International Development Association (IDA) and the Asian Development Bank (ADB) that were contracted before August 2021.
Static Growth: Because international financial institutions paused new lending after the change in government, the country’s debt stock has remained relatively static, while other developing nations saw their debt grow during the same period.
2. Why Afghanistan Ranks as a "Best Performer" in Concessionality
In the context of the World Bank's 2026 reports, "performance" refers to the structure of the debt rather than the health of the overall economy:
Exclusion from Commercial Markets: Afghanistan has no sovereign bonds and no commercial bank debt. This protects it from the high global interest rates (8%–10%) that are currently causing debt crises in other emerging markets.
Low Debt-to-GDP: Its total external debt remains low, hovering around 7.8% to 8.5% of GDP. This is significantly lower than the average for low-income countries (which often exceeds 40%).
Fixed, Low Interest: The interest payments on existing debt are fixed at near-zero levels, meaning the country’s debt service-to-revenue ratio is one of the lowest in the world—roughly 1.4%.
3. The Risks for 2026
While the debt structure is "safe" (concessional), the World Bank classifies Afghanistan at "High Risk of Debt Distress" for other reasons:
Grant Dependency: Afghanistan previously relied on grants to cover 75% of its public spending. With those grants largely cut off or restricted to humanitarian aid, the government has very little "fiscal space" to pay back even the small amount of debt it owes.
Economic Contraction: Since 2021, the economy has shrunk significantly. A small debt becomes harder to pay when the total GDP is much smaller.
No New Financing: Because the country cannot borrow new concessional funds, it must rely entirely on internal revenue and limited humanitarian inflows to function.
Afghanistan Debt Summary (2026 Projections)
| Indicator | Value |
| Total External Debt | ~$2.3 Billion |
| Debt-to-GDP Ratio | 7.8% |
| Concessional % | 82.1% |
| Primary Creditors | World Bank (IDA), ADB, IMF |
The Paradox: On paper, Afghanistan has a "perfect" debt portfolio because it is almost entirely concessional and very small. However, the lack of access to new concessional loans is one of the primary drivers of the country's current liquidity crisis.
Burundi: Performance and Strategy in Concessional Debt
In the current 2026 global financial landscape, Burundi stands out as a leading example of a nation that maintains a highly sustainable debt structure by relying almost exclusively on concessional financing. By avoiding volatile commercial markets and focusing on high-subsidy loans, Burundi has created a fiscal buffer against the high interest rates affecting much of the developing world.
1. The "Grant-First" Financial Model
Burundi’s debt profile is defined by its status as a "highly concessional" borrower. Because the country is classified by the World Bank as being at a high risk of debt distress, its borrowing is legally and strategically restricted to the most generous terms available.
Concessional Share: Approximately 75.2% of Burundi's total external debt consists of concessional loans.
Zero-Interest Windows: The vast majority of this debt is held by the International Development Association (IDA) and the African Development Bank (AfDB), featuring interest rates often at or near 0%.
Grant Eligibility: Under current frameworks, a significant portion of Burundi’s "financing" is actually provided as grants rather than loans. This allows the government to fund essential services without increasing its long-term debt stock.
2. Strategic Performance Indicators
Burundi’s performance in debt management is characterized by "defensive borrowing"—a strategy designed to prioritize survival and long-term stability over rapid, debt-fueled expansion.
Market Insulation
Unlike many of its neighbors, Burundi has zero outstanding Eurobonds or private commercial bank loans. In 2026, while other nations are struggling to pay 10–12% interest to private investors, Burundi’s external interest payments remain negligible.
Extended Repayment Timelines
The average maturity for Burundi's external debt exceeds 30 years, with 10-year grace periods. This "buy-now-pay-much-later" structure ensures that the current national budget can focus on immediate needs like healthcare and rural electrification.
Productive Sector Focus
Concessional funds in Burundi are strictly tied to specific development outcomes. Recent performance-linked loans have been directed toward:
Renewable Energy: Expanding the national grid through hydropower.
Agricultural Productivity: Subsidizing fertilizers and modernizing farming techniques to secure food sovereignty.
3. 2026 Economic Snapshot
| Indicator | Status/Value |
| Total Concessional % | 75.2% |
| Primary Creditor | World Bank (IDA) |
| Average Interest Rate | < 1% |
| Debt-to-GDP Ratio | Managed via Multilateral Support |
Conclusion
Burundi’s high ranking in concessional debt is a testament to its commitment to the Sustainable Development Finance Policy. By sticking to "soft" money, Burundi has avoided the "debt traps" associated with private lenders, ensuring that its path to economic recovery remains dictated by national interest rather than foreign creditors.
Malawi: Strategic Debt Transformation and Concessional Performance
According to the World Bank and IMF’s 2025–2026 debt sustainability monitoring, Malawi is executing one of the most significant shifts toward concessional financing in Sub-Saharan Africa. Faced with "unsustainable" debt levels, the government has adopted a "Concessional-Only" strategy to prevent economic collapse and stabilize its long-term growth.
1. The Pivot to Concessional Debt (2025–2026)
In early 2025, Malawi faced a critical juncture where interest payments on commercial debt were consuming nearly half of its domestic revenue. To fix this, the government implemented a Zero Non-Concessional Debt Ceiling:
Concessional Share: Approximately 72.8% of Malawi's total external debt is now concessional.
The "Malawi Vision 2063" Alignment: The government has mandated that no new external debt will be contracted unless it is from a multilateral source (like the World Bank or African Development Bank) with a high "grant element."
Multilateral Dominance: Over $3 billion of Malawi’s external debt is now owed to multilateral creditors, ensuring the interest burden remains at a fraction of market rates.
2. Why Malawi is a "Best Performer" in Concessionality
Malawi’s performance is marked by its aggressive efforts to "swap" expensive debt for cheaper, longer-term funds:
The Restructuring Shield: In 2025, Malawi successfully reached "agreements in principle" with major bilateral creditors to reprofile its debt. This turned immediate repayment pressures into long-term, low-interest obligations.
IDA-Reliance: As an "IDA-only" country, Malawi receives the majority of its World Bank support through IDA Grants and Credits which, in 2026, feature 40-year maturities and zero interest.
Protection from Global Hikes: While neighbors like Zambia or Kenya have struggled with the rising cost of the U.S. dollar, Malawi’s concessional portfolio is fixed at low rates, protecting it from global interest rate volatility.
3. Strategic Use of Concessional Funds
In 2026, the World Bank noted that Malawi is successfully directing its "soft" loans into three high-impact areas:
Agriculture Commercialization: Funding irrigation and fertilizer initiatives to boost food security.
Energy Resilience: Concessional loans are being used to repair and expand the Kapichira Hydropower Station after recent climate shocks.
Human Capital: Investing in health and education to meet the goals of the Malawi Vision 2063.
Malawi Debt Snapshot (2026 Projections)
| Indicator | Status/Value |
| Concessional Debt % | 72.8% |
| Public Debt-to-GDP | ~86% (High, but restructuring) |
| External Debt Composition | ~70% Multilateral |
| New Borrowing Policy | Zero Non-Concessional |
The 2026 Challenge: While Malawi’s external debt structure is "best-in-class" for concessionality, its domestic debt (owed in local currency) remains expensive. The World Bank’s strategy for 2026 is to help Malawi use further concessional inflows to pay down this high-interest domestic debt.
Ethiopia: Strategic Recovery and Concessional Debt Performance
In the current 2026 economic landscape, Ethiopia is recognized for its aggressive shift toward a "concessional-first" debt model. Following a period of significant fiscal pressure, the government has successfully utilized international support to restructure its obligations, prioritizing long-term, low-interest loans over expensive private market debt.
1. The Pivot to Concessional Financing
Ethiopia’s current debt strategy is anchored in the Homegrown Economic Reform Agenda (HGER). This policy mandates that the country move away from high-interest commercial bonds and toward "soft" loans provided by development partners.
Concessional Share: Approximately 69.5% of Ethiopia’s external debt is now held on concessional terms.
The "Zero-Limit" Policy: As part of its 2025–2026 fiscal reforms, Ethiopia has committed to a strict limit on new non-concessional borrowing. This ensures that any new debt taken for infrastructure—such as the Koysha Dam—must meet strict "grant element" requirements.
Multilateral Dominance: The World Bank (IDA) remains the nation's largest creditor, providing billions in credits that feature 38-year maturities and near-zero interest rates.
2. Why Ethiopia is a "Top Performer" in 2026
Despite facing a challenging global environment, Ethiopia has demonstrated high performance in debt management through three key pillars:
Successful Bilateral Restructuring
In early 2026, Ethiopia finalized major agreements with official creditors under the G20 Common Framework. This process converted what were once high-pressure, short-term payments into manageable, long-term concessional obligations. By working with partners like the Paris Club and China, Ethiopia has significantly lowered its annual debt service costs.
Exchange Rate Liberalization
A landmark performance indicator in 2026 is Ethiopia's transition to a market-determined exchange rate. This reform, completed in late 2024, corrected long-standing currency misalignments and unlocked massive inflows of concessional funding from the IMF and World Bank, which were previously restricted.
Infrastructure Protection
Unlike other nations that have had to halt major projects due to debt, Ethiopia’s reliance on concessional funds has allowed it to continue its energy transition. By securing "soft" money for the Grand Ethiopian Renaissance Dam (GERD) and related grid expansions, the country is building the industrial capacity needed to pay off its debt through future energy exports.
3. 2026 Economic Snapshot
| Indicator | Status/Value |
| Total Concessional % | 69.5% |
| Primary Creditor | World Bank (IDA) |
| Projected GDP Growth | ~7.2% |
| External Debt-to-GDP | ~15.0% (Descending) |
Conclusion
Ethiopia’s performance in 2026 is defined by rehabilitation. By aggressively swapping out private debt for concessional alternatives and implementing deep macroeconomic reforms, the country is successfully lowering its risk profile. This "concessional shield" has allowed Ethiopia to remain a regional leader in infrastructure development while avoiding the high-interest "debt traps" that have affected other emerging markets.
Best Practices in Concessional Debt Management: Lessons from the Leaders
The seven countries leading the world in concessional debt share do not achieve these results by chance. Their success in 2026 is built on a set of "best practices" developed in coordination with the World Bank and the IMF. These strategies provide a blueprint for how low-income nations can maintain stability in a high-interest global economy.
1. The "Concessional-Only" Legal Framework
The most effective practice used by countries like Timor-Leste and Somalia is the implementation of a formal legal ceiling on non-concessional borrowing.
Strict Statutory Limits: Passing laws that forbid the government from accepting loans with an interest rate above a certain threshold (usually 2-3%) or a "grant element" below 35%.
Centralized Authority: Ensuring that only the Ministry of Finance—not individual state agencies or local governments—has the legal power to contract external debt. This prevents "hidden" high-interest commercial debt from leaking into the national portfolio.
2. Transparent Debt Reporting (The "Gold Standard")
In 2026, the World Bank identifies Ethiopia and Malawi as top performers in Debt Transparency.
Public Debt Bulletins: These countries now publish quarterly reports that detail exactly who they owe, the interest rates, and the repayment schedules.
Open Data Access: By making their debt data public, these nations build trust with multilateral donors (like the IDA), which in turn unlocks more low-interest funding and grants that are unavailable to "secretive" borrowers.
3. Strategic "Debt Swapping"
Malawi has pioneered the practice of using new concessional loans to retire old, expensive debt.
Refinancing for Stability: When Malawi receives a 0% interest loan from the World Bank, it often uses a portion of those funds to pay off high-interest domestic or commercial loans.
The Result: This "swapping" lowers the country’s overall interest bill, creating "fiscal space" to fund essential services like healthcare and education.
4. Performance-Linked Borrowing
Burundi and Eritrea demonstrate a best practice of strictly tying debt to "productive" infrastructure rather than general consumption.
Project-Specific Loans: Concessional debt is only taken for projects that generate future revenue—such as hydropower dams or mining infrastructure.
Automatic Pricing Mechanisms: Burundi has implemented systems to ensure that services funded by debt (like electricity) are priced correctly, ensuring the project can eventually pay for its own financing without taxing the general public.
Summary Table: Best Practice Implementation (2026)
| Best Practice | Leading Country | Impact in 2026 |
| Legal Debt Ceilings | Timor-Leste | Kept external interest rates below 1.5%. |
| Debt Transparency | Ethiopia | Unlocked $3.4B in IMF/World Bank support. |
| Debt Swapping | Malawi | Reduced interest payments by 20% in one year. |
| Post-Conflict "Reset" | Somalia | Lowered debt-to-GDP from 64% to under 9%. |
Key Takeaway for 2026
The overarching "best practice" across all these nations is the rejection of "quick-fix" commercial loans. By patiently working within the G20 Common Framework and maintaining strong relationships with the World Bank, these countries have ensured that their debt remains a tool for growth rather than a burden for future generations.
