<p>This study investigates the dynamic relationships between financial development, external debt, and economic growth, incorporating the moderating role of institutional quality across the Next-11 countries. Employing a panel quantile autoregressive distributed lag (P-QARDL) model for the period 1990–2021, the analysis uncovers heterogeneous short-run and long-run effects across the conditional distribution of economic growth. The results show that external debt stimulates growth primarily at lower growth levels, where economies tend to face liquidity constraints, but its positive effect weakens as countries move toward higher growth levels. Financial development exerts stronger short-run growth effects at upper quantiles. The quantile-specific interaction terms reveal important asymmetries: regulatory quality and voice and accountability weaken the growth impact of debt in several lower quantiles, while control of corruption and the rule of law enhance the marginal productivity of debt at higher quantiles. Moreover, the rule of law displays a negative short-run association at lower growth levels, pointing to potential adjustment costs during institutional transitions. In the long run, institutional quality, particularly the rule of law, remains essential for sustaining growth and ensuring effective debt utilization. The findings highlight the importance of institution-sensitive debt management and financial sector reforms for emerging economies seeking to maximize the developmental benefits of external borrowing.</p>