By Ogundana Boluwatife
External debt owed by developing countries climbed to a record $9.4 trillion in 2025, as increased borrowing from private creditors and renewed access to international bond markets pushed debt levels higher, according to the World Bank.
The figure represents a 5.5 per cent increase from the previous year and the fastest annual rise since 2021, the World Bank said in its International Debt Report 2026, released on November 5.
Private financing accounted for a significant part of the increase, as international investors returned to emerging markets and governments issued more bonds to raise funds.
Bond issuance by public entities rose nearly 35 per cent to $251 billion, its highest level in five years.
The World Bank said access to international finance had improved, but borrowing costs remained high, particularly for the poorest countries.
Countries eligible for concessional financing from the World Bank’s International Development Association (IDA) recorded an 8.1 per cent increase in external debt to $1.3 trillion.
These countries paid an average interest rate of 8.2 per cent on new commitments from private creditors in 2025, the highest level since 1989. Their average borrowing cost on new bonds reached 9.4 per cent.
In comparison, countries eligible for financing from the International Bank for Reconstruction and Development paid an average of 5.5 per cent on new bonds.
The rising cost of borrowing has increased pressure on government finances, with low- and middle-income countries paying $1.4 trillion in principal and interest during 2025. This represented a 1.9 per cent increase and marked the fifth consecutive year of rising debt-service payments.
Payments to bondholders alone climbed to $363 billion, partly reflecting governments’ efforts to buy back or repay existing debt using proceeds from new borrowing.
The World Bank noted that developing countries paid $436 billion more in debt service than they received in new financing between 2022 and 2025.
However, long-term debt flows turned positive in 2025, recording a net inflow of $45 billion after a net outflow of $118 billion in 2024.
Currency movements also contributed to the increase in reported debt. More than a quarter of the $303 billion rise in public and publicly guaranteed debt resulted from the weaker US dollar, which increased the dollar value of obligations denominated in other currencies.
World Bank Chief Statistician and Director of Development Data Haishan Fu said the return of private lending was welcome but warned that countries were borrowing more while facing higher financing costs.
“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 report warned that growing debt-service obligations could reduce the resources available for essential public investments in healthcare, education, infrastructure and employment.
It also highlighted the need for stronger debt transparency and better management of complex financing arrangements as governments continue to rely on external borrowing.
The latest figures underline the difficult balance facing developing economies: securing funds for development while preventing rising interest payments from placing additional pressure on public finances.
