Developing countries’ external debt climbed to a record $9.4 trillion in 2025, as rising borrowing costs, increased reliance on private creditors and higher debt-servicing obligations intensified pressure on government finances, according to the World Bank.
The figure represents a 5.5% increase from the previous year and the fastest pace of growth since 2021, highlighting the growing financial challenges confronting emerging and developing economies.
The World Bank disclosed this in its International Debt Report 2026, released on Thursday, November 5, warning that mounting debt obligations were increasingly diverting resources away from long-term economic development. The report noted that the pace of external debt accumulation was approximately four times the average growth recorded between 2022 and 2024.
Countries eligible for concessional financing from the World Bank’s International Development Association (IDA) recorded an even sharper increase, with their external debt rising by 8.1% to $1.3 trillion.
Commenting on the development, World Bank Group Chief Statistician and Director of Development Data, Haishan Fu, said the return of private lending was positive but had created significant financial pressures for borrowing countries.
“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.
He stressed the importance of responsible debt management to ensure that borrowing supported sustainable development and did not undermine opportunities for future generations.
Developing Countries Face Rising Borrowing Costs
The World Bank report highlighted the increasing cost of accessing international capital, particularly for countries eligible for concessional financing. These countries paid an average interest rate of 8.2% on new commitments from private creditors in 2025, the highest level since 1989.
New bond issuances attracted an even higher average interest rate of 9.4%, reflecting the expensive conditions under which many developing economies were accessing international markets.
The difference between the interest rates paid to official and private creditors also widened considerably, increasing 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% on new bonds, down from 5.8% in 2024.
Although several governments issued new bonds to refinance maturing obligations and spread repayments over longer periods, the strategy did little to reduce their overall debt stocks and often exposed them to higher interest rates.
Debt servicing Tops $1.4 trillion
Low- and middle-income countries paid a combined $1.4 trillion in principal and interest in 2025, representing a 1.9% increase and the fifth consecutive annual rise, payments to bondholders increased to $363 billion, partly reflecting debt buybacks and early repayments financed through fresh bond issuances.
The World Bank also disclosed that between 2022 and 2025, developing countries paid $436 billion more in debt servicing than they received in new financing.
The imbalance highlighted how significant financial resources were being channelled towards servicing existing obligations rather than funding infrastructure, healthcare, education and other development priorities.
Dollar Weakness Pushes up Reported Debt Levels
According to the World Bank, more than a quarter of the $303 billion 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 which meant their reported debt stocks increased despite continued repayments on existing obligations.
The trend suggests that governments in developing economies continue to depend heavily on international borrowing to meet financing needs, even as the cost of servicing existing debt remains elevated.
