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External debt of developing countries rose 5.5 percent to a record $9.4tn in 2025, the fastest increase since 2021.
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IDA-eligible countries paid an average of 8.2 percent on new private loans and 9.4 percent on new bonds, the highest rates in decades.
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Low- and middle-income countries spent $1.4tn on debt servicing in 2025, marking a fifth consecutive annual increase.
November 05, (THEWILL) – External debt of developing countries rose to a record $9.4tn in 2025, as increased access to international capital markets came with higher borrowing costs, putting further pressure on government finances and development spending.
The World Bank disclosed this in its International Debt Report 2026, which showed that external debt increased by 5.5 percent during the year, the fastest pace since 2021 and about four times the average growth recorded between 2022 and 2024.
Private creditors accounted for much of the increase as international bond markets reopened to several developing economies.
Bond issuance by public entities rose nearly 35 per cent to $251bn, its highest level in five years.
Debt also grew faster among countries eligible for concessional financing from the World Bank’s International Development Association (IDA). Their external debt increased by 8.1 percent to $1.3tn in 2025.
The return of private financing, however, has not translated into cheaper borrowing.
The World Bank said many developing economies were taking on more debt at higher interest rates, leaving fewer resources available for long-term development priorities.
“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,” said Haishan Fu, World Bank Group Chief Statistician and Director of Development Data.
Poorest countries face highest borrowing costs
The cost of new borrowing was particularly high for IDA-eligible countries, which paid an average interest rate of 8.2 percent on new commitments from private creditors in 2025, the highest since 1989.
New bond borrowing by these countries carried an average interest rate of 9.4 percent.
The gap between the rates IDA-eligible countries paid to official and private creditors widened from 3.4 percentage points in 2016 to 5.5 percentage points in 2025, highlighting the cost difference between concessional financing and borrowing from private markets.
By comparison, countries eligible for loans from the World Bank’s International Bank for Reconstruction and Development (IBRD) paid an average of 5.5 percent on new bonds, down from 5.8 percent in 2024.
Some governments issued new bonds to buy back maturing debt and spread repayment obligations over longer periods.
However, these transactions generally did not reduce outstanding debt significantly and often involved higher interest rates.
Early 2026 data showed that demand for international bond financing remained strong despite the elevated costs.
By mid-August, more than 10 countries had already exceeded their full-year 2025 bond issuance, while several others returned to international markets.
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Debt servicing absorbs $1.4tn
Debt-service obligations remained a major pressure on developing economies. Low- and middle-income countries paid a combined $1.4tn in principal and interest in 2025, an increase of 1.9 percent and the fifth consecutive annual rise.
Payments to bondholders reached $363bn, partly reflecting debt buybacks and prepayments financed through new bond issues.
Between 2022 and 2025, developing countries paid $436bn more in debt service than they received in new financing, indicating the scale of resources transferred to creditors over the four years.
However, long-term debt flows reversed direction in 2025. After recording a net outflow of $118bn in 2024, they turned to a net inflow of $45bn, as new financing exceeded repayments on long-term debt.
Currency movements also contributed to the increase in reported debt.
More than a quarter of the $303bn rise in public and publicly guaranteed debt reflected the weakening of the US dollar, which increased the dollar value of obligations denominated in other currencies.
For several of the largest concessional borrowers, the currency effect exceeded the principal repaid during the year, leaving their reported debt higher despite continued repayments.
Ogochukwu Onwaeze is a writer specializing in business and economic journalism. At THEWILL News Media, she translates market trends, financial developments, and policy shifts into clear and engaging stories.
