The external debt of developing countries climbed to a record $9.4tn in 2025 as governments borrowed more from private lenders and international bond markets, while higher interest rates raised the cost of servicing those debts.
The World Bank disclosed this in its International Debt Report 2026, released on Thursday, warning that rising borrowing costs and growing debt-service obligations are putting pressure on public finances, particularly in the poorest countries.
The increase was the fastest since 2021 and about four times the average recorded between 2022 and 2024.
External debt grew fastest among countries eligible for concessional financing from the World Bank’s International Development Association, rising by 8.1 per cent to $1.3tn.
“External debt of developing countries jumped 5.5 per cent to a record $9.4tn in 2025, the fastest pace since 2021 and about four times the 2022–24 average,” the report stated.
Private creditors accounted for a large share of the rise as international financial markets reopened to developing economies.
Bond issuance by public entities rose by nearly 35 per cent to $251bn, the highest level in five years.
Commenting on the development, the World Bank Group Chief Statistician and Director of Development Data, Haishan Fu, said the return of private lending was welcome but came with significant financial pressures.
“The return of private lending to low- and middle-income countries is welcome, but these countries are borrowing more, paying more, and in many cases leaving less for long-term development,” Fu said.
The executive stressed the importance of responsible debt management so that future generations can also benefit from development opportunities.
The report noted that many governments issued new bonds to refinance maturing debt and spread repayment obligations over longer periods.
However, the strategy did little to reduce overall debt stocks and often came at higher interest rates.
The cost of borrowing was particularly heavy for countries eligible for concessional financing, which paid an average interest rate of 8.2 per cent on new commitments from private creditors in 2025, the highest since 1989.
New bond issuances by these countries attracted an average rate of 9.4 per cent.
The gap between the interest rates these countries paid to official and private creditors widened from 3.4 percentage points in 2016 to 5.5 percentage points in 2025.
By comparison, countries eligible for non-concessional financing through the World Bank’s International Bank for Reconstruction and Development paid an average of 5.5 per cent on new bonds, down from 5.8 per cent in the previous year, the report stated.
Beyond the higher cost of new borrowing, existing debt obligations continued to weigh on developing economies.
Low- and middle-income countries paid $1.4tn in principal and interest in 2025, a 1.9 per cent increase and the fifth consecutive annual rise.
Payments to bondholders climbed to $363bn, partly reflecting debt buybacks and early repayments financed through new bond issues.
The pressure was also visible in the gap between new financing and repayments.
Between 2022 and 2025, developing countries paid $436bn more in debt service than they received in new financing, highlighting the resources diverted towards servicing existing obligations.
However, the direction of long-term debt flows changed in 2025, moving away from a net outflow of 45bn.
The World Bank also highlighted the effect of currency movements on reported debt levels.
More than a quarter of the $303bn increase in public and publicly guaranteed debt reflected the weakening of the US dollar, which raised the dollar value of debt denominated in other currencies.
For some of the largest concessional borrowers, the currency effects exceeded the principal repayments made during the year, resulting in higher reported debt stocks despite continued debt servicing.
Meanwhile, early data for 2026 indicate that demand for international bond financing has remained strong despite elevated borrowing costs.
By mid-August, more than 10 developing countries had already exceeded their total bond issuance for 2025, while several others had returned to international markets.
