Developing countries' external debt hits a record 9.4 trillion dollars as the poorest pay the highest borrowing costs in decades

The external debt of developing countries jumped 5.5 percent to a record 9.4 trillion dollars in 2025, the fastest pace since 2021 and about four times the 2022-24 average, according to the World Bank Group's annual International Debt Report. Access to international finance has improved, the report finds, but the price of finance has not, and high debt burdens in the poorest countries threaten to crowd out essential investments in people.

Private financing drove much of the increase. Borrowing from private creditors jumped, and bond issuance by public entities rose nearly 35 percent to 251 billion dollars, the highest level in five years, as markets reopened to many developing countries. External debt grew fastest among the most vulnerable countries: in countries eligible for concessional financing from the bank's International Development Association, it increased 8.1 percent to 1.3 trillion dollars.

The highest rates in decades

Countries eligible for concessional financing paid an average of 8.2 percent on new private-creditor commitments in 2025, the highest rate since 1989, and 9.4 percent on new bonds. The gap between the rates these countries paid to official and private creditors widened from 3.4 percentage points in 2016 to 5.5 percentage points in 2025. Countries eligible only for non-concessional loans paid an average of 5.5 percent on new bonds, an improvement from 5.8 percent the previous year. Many governments issued new bonds to buy back maturing debt, smoothing repayment profiles without significantly reducing debt stocks, often at higher interest rates; early 2026 data show continued demand for international bond financing despite the high costs, with more than ten countries exceeding their full-year 2025 issuance by mid-August.

Debt-service pressures remained severe amid elevated global interest rates. Low- and middle-income countries paid 1.4 trillion dollars in principal and interest in 2025, up 1.9 percent and a fifth consecutive annual increase; payments to bondholders climbed to 363 billion dollars, partly reflecting buybacks and prepayments financed through new bond issues. Between 2022 and 2025, developing countries paid 436 billion dollars more in debt service than they received in new financing, though the direction shifted in 2025 as long-term debt flows turned from a 118 billion dollar net outflow in 2024 to a net inflow of 45 billion dollars.

Currency movements also played a role: more than a quarter of the 303 billion dollar increase in public and publicly guaranteed debt reflected the weaker American dollar, which raised the dollar value of debt denominated in other currencies; for several of the largest concessional borrowers, these currency effects outweighed the principal they repaid, leaving reported debt higher despite continued servicing. '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,' said Haishan Fu, the World Bank Group's chief statistician and director of development data, adding that managing debt responsibly means giving everyone, including future generations, a chance to thrive.