Washington:External debt of developing countries surged by 5.5% to a record $9.4 trillion in 2025, marking the fastest pace since 2021 and about four times the 2022-24 average.
According to Emirates News Agency, the World Bank Group's International Debt Report 2026 highlighted that while access to international finance has improved, the cost of finance has not, and high debt burdens in the poorest countries threaten essential investments in people.
Private financing was a significant factor in the debt increase. Borrowing from private creditors rose sharply, and bond issuance from public entities climbed nearly 35% to $251 billion, the highest level in five years as markets reopened to many developing countries. The most vulnerable countries experienced the fastest growth in external debt, increasing by 8.1% to $1.3 trillion in those eligible for concessional financing from the World Bank Group's International Development Association (IDA).
Haishan Fu, World Bank Group Chief Statistician and Director of Development Data, stated that while the return of private lending to low- and middle-income countries is positive, these nations are borrowing more, paying more, and often leaving less for long-term development. Managing debt responsibly is crucial to ensure future generations have opportunities to thrive.
Many governments issued new bonds to manage maturing debt, smoothing repayment profiles but often at higher interest rates. Early 2026 data shows ongoing demand for international bond financing from low- and middle-income countries despite high costs. By mid-August, over ten countries had exceeded their full-year 2025 issuance, with several others returning to international markets.
IDA-eligible countries paid an average of 8.2% on new private-creditor commitments in 2025, the highest rate since 1989, and 9.4% on new bonds. The differential between rates paid to official and private creditors widened from 3.4 percentage points in 2016 to 5.5 percentage points in 2025. Countries eligible for non-concessional loans from the International Bank for Reconstruction and Development (IBRD) saw an improvement, paying an average of 5.5% on new bonds, down from 5.8% the previous year.
Debt-service pressures remained high amidst elevated global interest rates, with low- and middle-income countries paying $1.4 trillion in principal and interest in 2025, a 1.9% rise, marking the fifth consecutive annual increase. Payments to bondholders increased to $363 billion, partly due to debt buybacks and prepayments funded by new bond issues.
Between 2022 and 2025, developing countries paid $436 billion more in debt service than they received in new financing. However, 2025 saw a shift, with long-term debt flows turning from a $118 billion net outflow in 2024 to a net inflow of $45 billion.
