SEC Form N-CSR filed by Western Asset Emerging Markets Debt Fund Inc

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED

MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number 811-21343

Western Asset Emerging Markets Debt Fund Inc.

Exact name of registrant as specified in charter)

620 Eighth Avenue, 47th Floor,

New York, NY 10018

(Address of principal executive offices) (Zip code)

George P. Hoyt

Franklin Templeton

100 First Stamford Place

Stamford, CT 06902

(Name and address of agent for service)

Registrant’s telephone number, including area code: 1-888-777-0102

Date of fiscal year end: December 31

Date of reporting period: December 31, 2023

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The Annual Report to Stockholders is filed herewith.

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WESTERN ASSET

EMERGING MARKETS DEBT FUND INC. (EMD)

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Managed Distribution Policy: The Fund’s Board of Directors (the “Board”) has authorized a managed distribution plan pursuant to which the Fund makes monthly distributions to shareholders at a fixed rate of $0.0845 per common share, which rate may be adjusted from time to time by the Fund’s Board (the “Plan”). The Plan is intended to provide shareholders with a constant, but not guaranteed, fixed minimum rate of distribution each month. The Fund is managed with a goal of generating as much of the distribution as possible from net ordinary income and short-term capital gains that is consistent with the Fund’s investment strategy and risk profile. To the extent that sufficient distributable income is not available on a monthly basis, the Fund will distribute long-term capital gains and/or return of capital in order to maintain its managed distribution rate. A return of capital may occur, for example, when some or all of the money that was invested in the Fund is paid back to shareholders. A return of capital distribution does not necessarily reflect the Fund’s investment performance and should not be confused with “yield” or “income”. Even though the Fund may realize current year capital gains, such gains may be offset, in whole or in part, by the Fund’s capital loss carryovers from prior years.

The Board may amend the terms of the Plan or terminate the Plan at any time without prior notice to the Fund’s shareholders, however, at this time there are no reasonably foreseeable circumstances that might cause the termination of the Plan. The amendment or termination of the Plan could have an adverse effect on the market price of the Fund’s common shares. The Plan is subject to the periodic review by the Board to determine if an adjustment should be made.

Shareholders should not draw any conclusions about the Fund’s investment performance from the amount of the current distribution or from the terms of the Fund’s Plan. The Fund will send a Form 1099-DIV to shareholders for the calendar year that will describe how to report the Fund’s distributions for federal income tax purposes.

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Fund objectives

The Fund’s primary investment objective is to seek high current income. As a secondary objective, the Fund seeks capital appreciation.

The Fund invests primarily in U.S. dollar and non-U.S. dollar denominated debt securities of issuers in emerging market countries.

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Letter from the chairman

Dear Shareholder,

We are pleased to provide the annual report of Western Asset Emerging Markets Debt Fund Inc. for the twelve-month reporting period ended December 31, 2023. Please read on for a detailed look at prevailing economic and market conditions during the Fund’s reporting period and to learn how those conditions have affected Fund performance.

As always, we remain committed to providing you with excellent service and a full spectrum of investment choices. We also remain committed to supplementing the support you receive from your financial advisor. One way we accomplish this is through our website, www.franklintempleton.com. Here you can gain immediate access to market and investment information, including:

We look forward to helping you meet your financial goals.

Sincerely,

Jane Trust, CFA

Chairman, President and Chief Executive Officer

January 31, 2024

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Fund overview

Q. What is the Fund’s investment strategy?

A. The Fund’s primary investment objective is to seek high current income and its secondary investment objective is to seek capital appreciation. The Fund invests primarily in U.S. dollar and non-U.S. dollar denominated debt securities of issuers in emerging market countries. In selecting investments for the Fund, we use a combination of qualitative assessments and quantitative models that seek to measure the relative risks and opportunities of each market segment based on economic, market, political, currency and technical data. We also make an assessment of economic and market conditions to create an optimal risk/return allocation of the Fund’s assets among various segments of the emerging markets debt asset class.

After we make our sector allocations, we use traditional credit analysis to identify individual securities for the Fund’s portfolio. In selecting foreign and emerging market issuer debt for investment, we consider the economic and political conditions within the issuer’s country, overall and external debt levels and debt service ratios, access to capital markets and debt service payment history.

At Western Asset Management Company, LLC (“Western Asset”), the Fund’s subadviser, we utilize a fixed income team approach, with decisions derived from interaction among various investment management sector specialists. The sector teams are comprised of Western Asset’s senior portfolio management personnel, research analysts and an in-house economist. Under this team approach, management of client fixed income portfolios will reflect a consensus of interdisciplinary views within the Western Asset organization. The individuals responsible for development of investment strategy, day-to-day portfolio management, oversight and coordination of the Fund are S. Kenneth Leech, Chia-Liang (CL) Lian, Kevin J. Ritter and Mark A. Hughes.

Q. What were the overall market conditions during the Fund’s reporting period?

A. The year 2023 was marked by market volatility, including a significant rise—and subsequent sharp fall—in U.S. Treasury yields, as well as spread-tightening across almost all spread sectors. The market digested shifting fundamental crosscurrents, including continued U.S. economic resilience, moderating inflation and a data-dependent Federal Reserve Board (“Fed”) outlook. Developments in the banking industry came to the forefront during the latter part of the first quarter of 2023. Medium-sized U.S. regional banks—Silicon Valley Bank and Signature Bank—were shut down and taken over by the Federal Deposit Insurance Corporation after the banks failed to stem deposit outflows. In March, the Swiss government, central bank and market regulator orchestrated the state-backed takeover of Credit Suisse by UBS for $3.3 billion. In an unprecedented move, Swiss officials forced Credit Suisse’s AT1 securities to be written down to zero and subordinated to equity.

The U.S. growth narrative fluctuated throughout the year, with recession concerns at the start of the year that were exacerbated by the banking turmoil. These fears subsided and the growth environment stabilized in the second quarter and then accelerated into the third

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Fund overview (cont’d)

quarter with gross domestic product (“GDP”) growth of 4.9%. Growth appeared to slow during the fourth quarter, with current expectations of roughly 2% GDP. U.S. economic data remained resilient but moderated during 2023. Job and wage growth slowed throughout the year as labor demand moderated and supply improved, bringing the labor market back towards balance. Inflation also moderated throughout the year, with annualized core inflation running close to the Fed’s 2% inflation rate target over the last six months of the year. These softer inflation readings set the stage for the Fed to slow the pace of rate hikes and ultimately hold the Fed funds target rate range steady at 5.25% to 5.50% during the last three meetings of the year. The Fed’s December “dot plot” showed the median Federal Open Market Committee member was expecting 75 basis points (0.75%) in rate cuts during 2024.

U.S. Treasury yields edged lower during the first quarter of 2023, as recession and banking concerns were heightened. Midway through the year, yields edged higher due to strong economic momentum, continued signs of labor market tightness and a “higher-for-longer” Fed narrative. Strong third quarter growth and concerns over U.S. Treasury supply put renewed upward pressure on long-term yields, with 30-year and 10-year yields surpassing 5% in mid-October for the first time since the Global Financial Crisis of 2007-2008. However, optimism that the Fed might be done with rate hikes and the possibility of less restrictive policy rates in 2024 spurred U.S. Treasury yields to change course and plummet in November and December. The yield for the 10-year Treasury note began and ended the reporting period at 3.88%.

Against this macro backdrop, emerging market debt posted positive returns. The U.S. dollar-denominated sovereign debt sector, as measured by the JPMorgan Emerging Markets Bond Index Global Diversifiedi, returned 11.09%, while local currency sovereign debt, as measured by the JPMorgan Government Bond Index-Emerging Markets Global Diversified Total Return Index ii, returned 12.70% during the twelve-month reporting period ended December 31, 2023. Emerging market corporate bonds, as measured by the JPMorgan Corporate Emerging Markets Bond Index Broad Diversifiediii, returned 9.08% during the same period.

Q. How did we respond to these changing market conditions?

A. During the year 2023, we continued to actively manage the Fund as we balanced macroeconomic headwinds to emerging market growth with historically attractive valuations. As the year progressed, global inflation fell and markets gained confidence that global central banks would be able to eventually cut rates, which allowed yields to fall and financial conditions to ease. After starting their hiking cycles before the Fed, emerging market central banks were able to start cutting their overnight rates during 2023, which aided growth prospects and credit availability across emerging markets. In response to our expectations of an end to central bank hikes and U.S. Treasury yields exceeding 5%, we increased duration in the Fund as 2023 progressed.

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From a sector perspective, we complemented our historical allocation to income-generating emerging market corporates with an increase in exposure to high yield-rated frontier sovereigns, whose valuations became distorted during 2022 due to constrained access to financing. Frontier sovereigns returned 21% during 2023, generating some of the best sector returns across the global credit universe. We continued a thoughtful approach towards emerging markets foreign exchange (“FX”), taking advantage of cyclically high yields in select emerging market local currency debt, while limiting aggregate exposure to non-U.S. dollar-denominated investments to roughly 6% of the Fund.

U.S. Treasury futures, which were used to manage the Fund’s duration and yield curve positioning, modestly contributed to performance. Currency forwards and options on currencies, which were used to manage the Fund’s local currency exposures, in aggregate, detracted from performance.

The use of leverage to enhance income was managed during the period to reduce volatility and ensure adequate margin coverage. We ended the reporting period with leverage at roughly 29% of the gross assets of the Fund, versus roughly 27% at the beginning of the period. Overall, leverage contributed to performance given the positive total return of the assets of the Fund in 2023.

Performance review

For the twelve months ended December 31, 2023, Western Asset Emerging Markets Debt Fund Inc. returned 13.10% based on its net asset value (“NAV”)iv and 12.19% based on its New York Stock Exchange (“NYSE”) market price per share. The Fund’s unmanaged benchmark, the JPMorgan Emerging Markets Bond Index Global Diversified, returned 11.09% for the same period.

The Fund has adopted a managed distribution policy (the “Managed Distribution Policy”). Pursuant to this policy, the Fund intends to make regular monthly distributions to common shareholders at a fixed rate per common share, which rate may be adjusted from time to time by the Fund’s Board of Directors. This policy has no impact on the Fund’s investment strategy and may reduce the Fund’s NAV. The Fund’s manager believes the policy helps maintain the Fund’s competitiveness and may benefit the Fund’s market price and premium/ discount to the Fund’s NAV.

During the twelve-month period, the Fund made distributions to shareholders totaling $0.92 per share of which $0.26 will be treated as a return of capital for tax purposes.* The performance table shows the Fund’s twelve-month total return based on its NAV and market price as of December 31, 2023. Past performance is no guarantee of future results.

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Fund overview (cont’d)

All figures represent past performance and are not a guarantee of future results.

** Total returns are based on changes in NAV or market price, respectively. Returns reflect the deduction of all Fund expenses, including management fees, operating expenses, and other Fund expenses. Returns do not reflect the deduction of brokerage commissions or taxes that investors may pay on distributions or the sale of shares.

† Total return assumes the reinvestment of all distributions, including returns of capital, at NAV.

‡ Total return assumes the reinvestment of all distributions, including returns of capital, in additional shares in accordance with the Fund’s Dividend Reinvestment Plan.

Q. What were the leading contributors to performance?

A. The largest contributor to the Fund’s performance over the reporting period was generally positive country allocation decisions. In particular, overweights to Argentina and Mexico were additive for returns. Additionally, exposure to corporate bonds contributed, especially within the oil, gas & consumable fuels industry space. Duration positioning was also beneficial as yields rallied to end the year.

Q. What were the leading detractors from performance?

A. Certain allocation decisions detracted from performance. An underweight to Pakistan was a headwind for returns, as did an underweight to Saudi Arabia. Additionally, currency positioning detracted from performance, particularly in the Egyptian pound and Uzbekistan Som.

Looking for additional information?

The Fund is traded under the symbol “EMD” and its closing market price is available in most newspapers under the NYSE listings. The daily NAV is available online under the symbol “XEMDX” on most financial websites. Barron’s and The Wall Street Journal’s Monday edition both carry closed-end fund tables that provide additional information. In addition, the Fund issues a quarterly press release that can be found on most major financial websites as well as www.franklintempleton.com.

In a continuing effort to provide information concerning the Fund, shareholders may call 1-888-777-0102 (toll free), Monday through Friday from 8:00 a.m. to 5:30 p.m. Eastern Time, for the Fund’s current NAV, market price and other information.

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Thank you for your investment in the Western Asset Emerging Markets Debt Fund Inc. As always, we appreciate that you have chosen us to manage your assets and we remain focused on achieving the Fund’s investment goals.

Sincerely,

Western Asset Management Company, LLC

January 24, 2024

RISKS: The Fund is a non-diversified, closed-end management investment company designed primarily as a long-term investment and not as a trading vehicle. The Fund is not intended to be a complete investment program and, due to the uncertainty inherent in all investments, there can be no assurance that the Fund will achieve its investment objective. The Fund’s common stock is traded on the New York Stock Exchange. Similar to stocks, the Fund’s share price will fluctuate with market conditions and, at the time of sale, may be worth more or less than the original investment. Shares of closed-end funds often trade at a discount to their net asset value. Because the Fund is non-diversified, it may be more susceptible to economic, political or regulatory events than a diversified fund. The Fund’s investments are subject to a number of risks, including credit risk, inflation risk and interest rate risk. As interest rates rise, bond prices fall, reducing the value of the Fund’s fixed income holdings. Investing in foreign securities is subject to certain risks not associated with domestic investing, such as currency fluctuations, and social, political and economic uncertainties which could result in significant volatility. These risks are magnified in emerging or developing markets. Emerging market countries tend to have economic, political, and legal systems that are less developed and are less stable than those of more developed countries. High yield bonds (commonly known as “junk bonds”) involve greater credit and liquidity risks than investment grade bonds. The Fund may make significant investments in derivative instruments, such as options and futures, which can be illiquid, may disproportionately increase losses, and have a potentially large impact on Fund performance. Leverage may result in greater volatility of NAV and the market price of common shares and increases a shareholder’s risk of loss. The market values of securities or other assets will fluctuate, sometimes sharply and unpredictably, due to changes in general market conditions, overall economic trends or events, governmental actions or intervention, actions taken by the U.S. Federal Reserve or foreign central banks, market disruptions caused by trade disputes or other factors, political developments, armed conflicts, economic sanctions and countermeasures in response to sanctions, major cybersecurity events, investor sentiment, the global and domestic effects of a pandemic, and other factors that may or may not be related to the issuer of the security or other asset. The Fund may also invest in money market funds, including funds affiliated with the Fund’s manager and subadvisers. For more information on Fund risks, see Summary of information regarding the Fund - Principal Risk Factors in this report.

Portfolio holdings and breakdowns are as of December 31, 2023 and are subject to change and may not be representative of the portfolio managers’ current or future investments. Please refer to pages 10 through 28 for a list and percentage breakdown of the Fund’s holdings.

The mention of sector breakdowns is for informational purposes only and should not be construed as a recommendation to purchase or sell any securities. The information provided regarding such sectors is

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Fund overview (cont’d)

not a sufficient basis upon which to make an investment decision. Investors seeking financial advice regarding the appropriateness of investing in any securities or investment strategies discussed should consult their financial professional. The Fund’s top five sector holdings (as a percentage of net assets) as of December 31, 2023 were: sovereign bonds (84.7%), energy (19.0%), materials (9.8%), utilities (7.1%) and industrials (5.3)%. The Fund’s portfolio composition is subject to change at any time.

All investments are subject to risk including the possible loss of principal. Past performance is no guarantee of future results. All index performance reflects no deduction for fees, expenses or taxes. Please note that an investor cannot invest directly in an index.

The information provided is not intended to be a forecast of future events, a guarantee of future results or investment advice. Views expressed may differ from those of the firm as a whole.

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Fund at a glance^† (unaudited)

Investment breakdown (%) as a percent of total investments

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Fund performance (unaudited)

All figures represent past performance and are not a guarantee of future results. Returns reflect the deduction of all Fund expenses, including management fees, operating expenses, and other Fund expenses. Returns do not reflect the deduction of brokerage commissions or taxes that investors may pay on distributions or the sale of shares.

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Historical performance

Value of $10,000 invested in

Western Asset Emerging Markets Debt Fund Inc. vs. JPMorgan Emerging Markets Bond Index Global Diversified† — December 2013 - December 2023

All figures represent past performance and are not a guarantee of future results. Returns reflect the deduction of all Fund expenses, including management fees, operating expenses, and other Fund expenses. Returns do not reflect the deduction of brokerage commissions or taxes that investors may pay on distributions or the sale of shares.

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Schedule of investments

December 31, 2023

Western Asset Emerging Markets Debt Fund Inc.

(Percentages shown based on Fund net assets)

See Notes to Financial Statements.

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Western Asset Emerging Markets Debt Fund Inc.

(Percentages shown based on Fund net assets)

See Notes to Financial Statements.

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Schedule of investments (cont’d)

December 31, 2023

Western Asset Emerging Markets Debt Fund Inc.

(Percentages shown based on Fund net assets)

See Notes to Financial Statements.

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Western Asset Emerging Markets Debt Fund Inc.

(Percentages shown based on Fund net assets)

See Notes to Financial Statements.

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Schedule of investments (cont’d)

December 31, 2023

Western Asset Emerging Markets Debt Fund Inc.

(Percentages shown based on Fund net assets)

See Notes to Financial Statements.

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Western Asset Emerging Markets Debt Fund Inc.

(Percentages shown based on Fund net assets)

See Notes to Financial Statements.

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Schedule of investments (cont’d)

December 31, 2023

Western Asset Emerging Markets Debt Fund Inc.

(Percentages shown based on Fund net assets)

See Notes to Financial Statements.

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Western Asset Emerging Markets Debt Fund Inc.

(Percentages shown based on Fund net assets)

See Notes to Financial Statements.

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Schedule of investments (cont’d)

December 31, 2023

Western Asset Emerging Markets Debt Fund Inc.

(Percentages shown based on Fund net assets)

See Notes to Financial Statements.

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Western Asset Emerging Markets Debt Fund Inc.

(Percentages shown based on Fund net assets)