The interest‐rate–growth differential (IRGD) plays a critical role in determining the sustainability of government debt. Yet it is striking that IRGDs are correlated with income levels, and are generally negative in emerging and developing economies, which contradicts standard economic theory. Negative IRGDs constitute a powerful debt‐stabilising force, driving down debt ratios or keeping them stable even in the presence of persistent primary deficits. Motivated by the puzzling facts, this paper examines the IRGDs for a large panel of advanced and non‐advanced economies by utilising a newly assembled data set. The evidence shows that large negative IRGDs in emerging and developing economies are largely due to real interest rates well below market equilibrium – stemming from financial repression and captive and distorted markets – whereas the income catch‐up process plays a relatively modest role. Therefore, the IRGD in non‐advanced economies is likely to rise with financial market development and financial global integration, perhaps even before their GDP per capita converges to advanced‐economy levels.