The external debt of developing countries reached a record $9.4 trillion in 2025, according to the World Bank's International Debt Report 2026. This represents a 5.5% increase from the previous year, with the largest jump since 2021. The surge is largely attributed to the return of private creditors, with bond issuances by public entities in developing countries rising by nearly 35% to $251 billion. This is the highest level in five years.
The World Bank report, released on November 5 in Washington, notes that countries eligible for concessional financing from the International Development Association (IDA) are not exempt from this trend. Their external debt increased by 8.1% to $1.3 trillion. According to Haishan Fu, Chief Statistician of the World Bank Group, the return of private financing presents an opportunity but also exposes borrowers to heavier financial burdens. Many countries are dedicating fewer resources to long-term development.
The current financial cycle, which began after 2021, has seen a tightening of financial conditions globally. Despite improved access to international markets, borrowing terms have not eased, especially for fragile economies. Countries eligible for IDA loans have paid an average interest rate of 8.2% on new private creditor commitments, the highest since 1989. On new bonds, this rate reached 9.4%. Between 2022 and 2025, developing countries paid $436 billion more in debt service than they received in new financing.
Although net long-term debt flows turned positive in 2025, with $45 billion in inflows, this improvement is fragile. In 2025, low- and middle-income countries allocated $1.4 trillion to debt repayment, marking a fifth consecutive annual increase. Bondholder payments alone reached $363 billion. To meet these obligations, several governments have issued new bonds to refinance their loans, reorganizing repayments without reducing the debt stock.
The rising debt service burden risks compressing available budget margins for health, education, and infrastructure. The evolution of debt is also influenced by currency fluctuations. Over $75 billion of the $303 billion increase in public and state-guaranteed debt is attributed to the weakening US dollar, which has increased the dollar value of non-US currency-denominated debt. For some major borrowers, this exchange rate effect exceeded the principal repaid in 2025.
The World Bank report highlights a structural dilemma facing developing countries. They must finance growing economic and social needs while containing rising debt costs. The return of private investors, often seen as a sign of confidence, is accompanied by prohibitive rates for the poorest countries and increased vulnerability to exchange shocks. Without sufficient concessional financing, the consecutive increases in debt service may become the norm, directly impacting development trajectories.
The situation underscores the need for careful management of debt sustainability, which depends not only on state budget decisions but also on external factors beyond their control. The report's findings emphasize the importance of addressing these challenges to ensure that developing countries can meet their development needs without compromising their financial stability.
Key points
- Developing countries' external debt reached a record $9.4 trillion in 2025.
- The return of private creditors has led to heavier financial burdens for borrowers.
- Rising debt service costs risk reducing available budget margins for essential public expenditures.
