The external debt of developing countries reached a record high of $9.4 trillion in 2025 – an increase of 5.5% over the previous year – driven by greater reliance on private creditors and a resurgence in bond issuance, according to the World Bank Group’s ‘International Debt Report 2026’.
Released on November 5 in Washington, the report notes that this growth is the fastest seen since 2021 and is nearly four times the average recorded between 2022 and 2024. Despite improved access to international financial markets, borrowing conditions remain costly, particularly for the most vulnerable economies.
The situation is especially concerning for countries eligible for concessional financing from the International Development Association (IDA); their external debt rose by 8.1%, reaching $1.3 trillion in 2025.
The renewed activity of private creditors is the primary driver of this trend. Bond issuance by public entities in developing countries grew by nearly 35%, reaching $251 billion – the highest level in five
years.
According to Haishan Fu, Chief Statistician of the World Bank Group, the return of private financing presents an opportunity, but it also exposes recipient countries to heavier financial burdens.
She points out that low- and middle-income nations are borrowing more while, in many cases, allocating fewer resources toward long-term development.
An Increasingly Heavy Debt-Service Burden
In 2025, low- and middle-income countries spent $1.4 trillion on principal repayments and interest payments – an increase of 1.9% and the fifth consecutive annual rise. Payments to bondholders alone reached $363 billion. To meet maturing obligations, several governments issued new securities to refinance their existing debt – a strategy that allows for the restructuring of repayment schedules without necessarily reducing the total stock of debt.
Borrowing conditions remain particularly challenging for the poorest nations. Countries eligible for IDA loans paid an average interest rate of 8.2% on new commitments to private creditors – the highest level since 1989. For new bond issues, this rate reached 9.4%.
Between 2022 and 2025, developing countries paid $436 billion more in debt service than they received in new financing.
However, net long-term debt flows turned positive again in 2025, with an inflow of $45 billion, following a net outflow of $118 billion in 2024.
The impact of currency fluctuations
Debt trends are also driven by exchange rate fluctuations. Of the $303 billion increase in public and publicly guaranteed debt, more than a quarter is attributable to the weakening of the U.S. dollar, which raised the dollar-denominated value of obligations held in other currencies.
For some major borrowers that rely on concessional financing, this exchange-rate effect actually exceeded the principal amount repaid in 2025, leading to an increase in reported debt despite the repayments made.
This situation illustrates the difficulties developing countries face in balancing the need to finance their economic requirements with the need to keep their debt levels under control.
The rise in debt service costs reduces, in particular, the budgetary room for manoeuvre available for investments in health, education, and infrastructure – areas essential to development.
TE/Sf/fss/as/APA