The World Bank has warned that developing countries are borrowing more and paying higher interest rates on new debts, with external debt reaching a record $9.4 trillion in 2025. This represents a 5.5% increase, the largest annual rise since 2021. The bank's report highlights concerns about the sustainability of debt and the impact on essential investments in areas like education, infrastructure, and healthcare.
According to the World Bank, low- and middle-income countries are paying higher interest rates on new debts, with an average rate of 8.2% on new loans from private creditors, the highest since 1989. In contrast, countries eligible for low-interest loans from the International Development Association paid an average of 5.5% on new bonds, down from 5.8% in 2024.
The World Bank's report notes that borrowing by developing countries from private creditors and issuing bonds has increased by 35% to $251 billion, the highest level in five years. The report also highlights that countries with lower incomes are experiencing the fastest growth in external debt, which rose 8.1% to $1.3 trillion in 2025.
World Bank statistician Haishan Fu emphasized that while the return of private lending to low- and middle-income countries is welcome, these countries are borrowing more and paying more, leaving fewer resources for long-term development. Fu stressed the importance of responsible debt management to ensure that future generations have opportunities to thrive.
The report reveals that many governments have issued new bonds to refinance existing debts, often at higher interest rates, without significantly reducing debt levels. Despite rising costs, demand for borrowing has remained strong, with over 10 countries exceeding their 2025 borrowing targets by mid-August.
Developing countries paid $1.4 trillion in debt and interest in 2025, marking the fifth consecutive annual increase. This was driven by a 13.7% rise in payments to private creditors, reaching $363 billion. The report also notes that between 2022 and 2025, developing countries paid $436 billion more in debt servicing than they received in new financing.
The World Bank's findings have raised concerns among policymakers, with officials warning about the risks of high debt levels and rising interest rates for developing countries. The report's authors emphasize the need for careful debt management to avoid undermining development progress and to ensure that financing reaches those who need it most.
Key points
- Developing countries' external debt reached a record $9.4 trillion in 2025.
- Borrowing costs for developing countries have increased, with an average interest rate of 8.2% on new loans from private creditors.
- The World Bank has warned about the risks of high debt levels and rising interest rates for developing countries.
