The external debt of developing countries has reached a record high of $9.4 trillion, according to the World Bank's recent report on international debt 2026. This represents a 5.5% increase, marking the fastest growth since 2021 and nearly four times the average recorded between 2022 and 2024. The World Bank attributes this surge to the return of private creditors, which has driven up borrowing costs for countries with low and middle incomes.
The World Bank reports that countries with low and middle incomes are borrowing more from private creditors, paying higher interest rates, and dedicating fewer resources to long-term development. In 2025, these countries borrowed at an average interest rate of 8.2% from private creditors, the highest since 1989. The interest rate on new bonds reached 9.4%. This has resulted in a significant gap between the rates paid to public and private creditors, which has widened from 3.4 percentage points in 2016 to 5.5 percentage points in 2025.
The return of private creditors has led to an increase in bond issuances by public entities, which rose by nearly 35% to $251 billion in 2025, the highest level in five years. The external debt of countries eligible for concessional financing from the International Development Association (IDA) jumped by 8.1% to $1.3 trillion. To manage their debt, several governments have issued new bonds to repay maturing debts, allowing them to better distribute repayment deadlines without reducing their debt burden.
Despite the challenges, the demand for international bond financing remains strong in countries with low and middle incomes. According to the World Bank, over 10 countries have already surpassed their 2025 emission volumes, and several others are returning to international markets. However, the pressures related to debt repayment and interest payments remain high in a context of elevated global interest rates.
In 2025, countries with low and middle incomes paid $1.4 trillion for principal and interest repayments, a 1.9% increase and the fifth consecutive annual rise. Payments to bondholders reached $363 billion, partly due to debt buybacks and advance repayments financed by new bond issuances. Between 2022 and 2025, developing countries paid $436 billion more in debt service than they received in new financing.
The World Bank notes that the trend has reversed in 2025, with long-term debt flows shifting from net outflows of $118 billion in 2024 to net inflows of $45 billion. Exchange rate fluctuations have also contributed to the increase in debt, with over a quarter of the $303 billion rise in public and state-guaranteed debt attributed to the weakening of the US dollar.
The World Bank warns that the high debt burden could undermine essential investments in human capital in the poorest countries. The institution emphasizes the need for careful management of debt and financing strategies to mitigate these risks and ensure sustainable development.
Key points
- The external debt of developing countries has reached a record $9.4 trillion, driven by the return of private creditors and rising borrowing costs.
