Developing Countries' External Debt Reaches Record $9.4 Trillion

The external debt of developing countries has reached a record high of $9.4 trillion, increasing by 5.5% in 2025. This rapid growth is the fastest pace since 2021 and about four times the average of the previous three years. According to the World Bank Group's International Debt Report 2026, this significant increase is largely driven by private financing. Borrowing from private creditors surged, and bond issuance from public entities rose nearly 35% to $251 billion, the highest level in five years.

The increase in external debt was most pronounced among the most vulnerable countries. Countries eligible for concessional financing from the World Bank Group's International Development Association (IDA) saw their external debt grow by 8.1% to $1.3 trillion. These countries are facing high debt burdens, which threaten to crowd out essential investments in people. The World Bank Group's Chief Statistician and Director of Development Data, Haishan Fu, noted that 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.

Many governments have issued new bonds to buy back maturing debt, smoothing repayment profiles without significantly reducing debt stocks, often at higher interest rates. In early 2026, data show continued demand for international bond financing from low- and middle-income countries despite the high costs. By mid-August, more than 10 countries had exceeded their full-year 2025 issuance, while several others returned to international markets. This trend indicates that countries are still seeking to access international finance, despite the high costs.

The cost of borrowing for low- and middle-income countries has increased significantly. 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 gap between the rates IDA-eligible countries paid to official and private creditors widened from 3.4 percentage points in 2016 to 5.5 percentage points in 2025. In comparison, countries eligible for only non-concessional loans from the World Bank Group's International Bank for Reconstruction and Development (IBRD) paid an average of 5.5% on new bonds.

Debt-service pressures remained severe amid elevated global interest rates. Low- and middle-income countries paid $1.4 trillion in principal and interest in 2025, up 1.9% and marking a fifth consecutive annual increase. Payments to bondholders climbed to $363 billion, partly reflecting debt buybacks and prepayments financed through new bond issues. Between 2022 and 2025, developing countries paid $436 billion more in debt service than they received in new financing.

However, the direction of debt flows shifted in 2025, as long-term debt flows turned from a net outflow of $118 billion in 2024 to a net inflow of $45 billion. Currency movements also played a role in the reported increase, with more than a quarter of the $303 billion increase in public and publicly guaranteed debt reflecting the weaker US dollar. For several of the largest concessional borrowers, these currency effects outweighed the principal they repaid in 2025, leaving reported debt higher despite continued servicing.

The International Debt Report 2026 highlights the need for responsible debt management. The World Bank Group's Haishan Fu emphasized that managing debt responsibly means giving everyone, including future generations, a chance to thrive. As developing countries continue to face significant debt burdens, finding sustainable solutions to manage their external debt will be crucial to ensuring long-term economic growth and development.

Key points

• Developing countries' external debt reached a record $9.4 trillion in 2025, driven largely by private financing.
• The cost of borrowing for low- and middle-income countries has increased significantly, with IDA-eligible countries paying an average of 8.2% on new private-creditor commitments in 2025.
• Debt-service pressures remained severe amid elevated global interest rates, with low- and middle-income countries paying $1.4 trillion in principal and interest in 2025.