By Yunusa Abubakar
Developing countries’ external debt rose by 5.5 per cent to a record $9.4tn in 2025, with the World Bank warning that mounting repayment obligations could leave governments with fewer resources for critical development projects.
The bank disclosed this in its International Debt Report 2026, noting that the increase represented the fastest annual growth since 2021.
It said low- and middle-income countries were increasingly relying on private creditors and international bond markets to finance their economies, despite rising borrowing costs.
According to the report, debt-service payments by the countries increased for the fifth consecutive year, reaching $1.4tn in 2025, representing a 1.9 per cent rise.
The World Bank warned that the growing debt burden could undermine spending on infrastructure, healthcare, education and other essential public services.
“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,” the bank’s Chief Statistician, Haishan Fu, said.
The report showed that the debt burden was more severe among countries eligible for financing from the World Bank’s International Development Association.
Their external debt stock increased by 8.1 per cent to $1.3tn in 2025.
For low-income countries, external debt climbed by 8.9 per cent to $262.4bn, the largest annual increase since 2020.
The bank said countries eligible for IDA financing paid an average interest rate of 8.2 per cent on new private-sector borrowing in 2025.
It described the rate as the highest since 1989.
Borrowing through international bonds was even more expensive, with the average interest rate reaching 9.4 per cent.
The report also revealed a widening gap between the borrowing costs imposed by official and private creditors.
The difference increased to 5.5 percentage points in 2025, compared with 3.4 percentage points in 2016.
In contrast, countries eligible for financing from the International Bank for Reconstruction and Development paid an average of 5.5 per cent on new bonds, down from 5.8 per cent in 2024.
The World Bank attributed much of the increase in developing countries’ debt to renewed activity in international bond markets and increased lending by private creditors.
It said debt owed by low- and middle-income countries to private creditors rose by 5.2 per cent to $5tn in 2025, compared with growth of 0.6 per cent in the previous year.
Public-sector bond issuance also increased by 34.6 per cent to $250.6bn, accounting for 68.1 per cent of new disbursements during the year.
The bank said preliminary figures for January to August 2026 showed that borrowing through international bond markets remained strong.
More than 10 countries had already exceeded their full-year 2025 bond issuance volumes by mid-August.
However, it cautioned that some governments were issuing fresh bonds to repay maturing debts, effectively extending repayment periods without significantly reducing their overall debt burden.
Such refinancing arrangements, it said, often came with higher interest rates.
Payments to bondholders also increased by 13.7 per cent to $363.1bn in 2025.
The report further disclosed that between 2022 and 2025, low- and middle-income countries paid about $436.1bn more in debt service than they received in new financing.
However, the trend reversed in 2025, as long-term debt flows recorded a net inflow of $45.4bn, compared with a net outflow of $118.4bn in 2024.
The World Bank also identified currency movements as a significant factor behind the increase in reported debt.
It said the weakening of the US dollar accounted for 28.2 per cent of the rise in external public and publicly guaranteed debt among low- and middle-income countries.
The institution called for stronger debt transparency and improved reporting by borrowing countries and creditors.
It said better disclosure would help governments maintain accurate debt records, assess their financial obligations and make informed borrowing decisions.
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