Developing countries’ external debt surges to a record $9.4trn – World Bank

In 2025, the external debt of developing countries surged to an all-time high of $9.4 trillion, marking a 5.5% increase from the previous year and nearly quadrupling the average debt levels observed between 2022 and 2024, according to the World Bank Group's International Debt Report 2026. While access to international finance has improved, the cost of borrowing has not declined, putting significant pressure on the finances of the world's poorest nations.

The increase in debt was primarily driven by private creditors, with borrowing from these sources rising sharply and bond issuance from public entities growing by nearly 35% to $251 billion, the highest level in five years as global markets reopened to many developing nations. The most vulnerable countries experienced the fastest rise in external debt, with their debt levels climbing 8.1% to $1.3 trillion, an amount eligible for concessional financing under the World Bank Group's International Development Association (IDA).

World Bank Group Chief Statistician and Director of Development Data, Haishan Fu, expressed concern that the return of private lending to low- and middle-income countries is welcome, yet these nations are concurrently borrowing more, paying higher rates, and allocating fewer resources to long-term development initiatives. Many governments resorted to issuing new bonds to manage their debt obligations, extending repayment timelines without substantial reductions in debt levels, often at increased interest rates.

Early data from early 2026 suggests that despite the high costs, demand for international bond financing from low- and middle-income countries remains robust, with over 10 countries surpassing their 2025 issuance targets by mid-August, and several others resuming international borrowing. However, IDA-eligible countries faced higher borrowing costs, paying an average of 8.2% on new commitments from private creditors in 2025—the highest rate since 1989—and 9.4% on new bonds.

This marked a widening gap between rates paid by IDA-eligible countries and those eligible only for non-concessional loans from the World Bank Group's International Bank for Reconstruction and Development (IBRD), which decreased from 3.4 percentage points in 2016 to 5.5 percentage points in 2025. The disparity between rates paid by official and private creditors has further widened over time, reaching 5.5 percentage points in 2025, compared to 3.4 percentage points in 2016.

The rising debt service burdens continue to pose a challenge, as low- and middle-income countries paid $1.4 trillion in principal and interest in 2025—an increase of 1.9% and the fifth consecutive annual rise. Debt servicing costs were even higher, amounting to $363 billion in bondholder payments, partly due to debt buybacks and prepayments financed through new bond issuances.

Between 2022 and 2025, developing countries experienced a shift in their debt service dynamics, paying $436 billion more in debt service than they received in fresh financing. The debt service situation began to improve in 2025, with long-term debt flows transitioning from a $118 billion net outflow in 2024 to a net inflow of $45 billion.

Currency movements, particularly the weakened US dollar, played a significant role in the reported increase, as more than a quarter of the $303 billion rise in public and publicly guaranteed debt was attributed to the dollar's depreciation against other currencies. For several of the largest concessional borrowers, currency effects outweighed their principal repayments in 2025, leaving reported debt levels higher despite ongoing servicing requirements.