External debt owed by developing countries jumped 5.5% to a record $9.4 trillion in 2025, the fastest increase since 2021, the World Bank said on Thursday, warning that renewed access to private finance is coming at borrowing costs that threaten essential development spending.
The World Bank Group's International Debt Report 2026, released on 5 November, shows that while markets have reopened to many developing countries, the price of borrowing has not improved — and for the world's poorest nations, it is the highest in decades.
"Access to international finance has improved, but the price of finance has not, and high debt burdens in the poorest countries threaten to crowd out essential investments in people," the Bank said in its statement.
What the report found
The headline figures, all from the Bank's annual report, show a sharp acceleration after three years of slower growth. The 5.5% rise in 2025 was about four times the average recorded between 2022 and 2024.
| Measure | 2025 figure | Change |
|---|---|---|
| Total external debt, developing countries | $9.4 trillion | Up 5.5%, fastest since 2021 |
| External debt, IDA-eligible countries | $1.3 trillion | Up 8.1% |
| Bond issuance by public entities | $251 billion | Up nearly 35%, highest in five years |
| Debt service paid (principal and interest) | $1.4 trillion | Up 1.9%, fifth consecutive annual rise |
| Net flow, 2022–2025 | $436 billion more paid than received | Flows turned positive in 2025 |
Debt grew fastest among the most vulnerable economies. External debt in countries eligible for concessional financing from the World Bank's International Development Association (IDA) — its arm for the poorest countries — rose 8.1% to $1.3 trillion.
Private money is back — at a price
Private financing drove much of the increase. Borrowing from private creditors jumped, and bond issuance by public entities rose nearly 35% to $251 billion, the highest level in five years, as markets reopened to many developing countries, according to the Bank.
But much of the new borrowing did not reduce what governments owe. Many governments issued new bonds to buy back maturing debt, smoothing their repayment profiles without significantly reducing debt stocks — often at higher interest rates, the Bank said.
Early 2026 data show the pattern continuing. By mid-August, more than 10 countries had already exceeded their full-year 2025 bond issuance, while several others returned to international markets, the report found.
"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." — Haishan Fu, World Bank Group Chief Statistician
The poorest pay the most
The cost gap between rich and poor borrowers widened sharply. 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 World Bank said.
By contrast, countries eligible only for non-concessional loans from the Bank's International Bank for Reconstruction and Development paid an average of 5.5% on new bonds, an improvement from 5.8% the previous year.
| Borrower group | Average rate, new private-creditor commitments | Average rate, new bonds |
|---|---|---|
| IDA-eligible (poorest) countries | 8.2% — highest since 1989 | 9.4% |
| IBRD-only countries | Not reported | 5.5%, down from 5.8% in 2024 |
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, according to the report.
Why it matters: when a government pays 8% or more to borrow, a large share of every budget goes to creditors rather than to hospitals, schools, roads and power. The World Bank's warning is that this squeeze is now structural, not temporary — debt service has risen for five consecutive years.
Debt service is crowding out development
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, the Bank said.
Between 2022 and 2025, developing countries paid $436 billion more in debt service than they received in new financing. The direction shifted in 2025, however, as long-term debt flows turned from a $118 billion net outflow in 2024 to a net inflow of $45 billion.
Fu warned that the global economy is now more prone to shocks — having faced the pandemic, inflation driven by wars in Ukraine and Iran, and an upended global trade order due to US tariffs — and that high debt levels leave developing countries even more constrained in their response, according to AFP.
"Managing debt responsibly means giving everyone — including future generations — a chance to thrive," Fu said.
Currency swings flattered the total
Not all of the increase reflects new borrowing. More than a quarter of the $303 billion rise in public and publicly guaranteed debt reflected the weaker US dollar, which raised the dollar value of debt denominated in other currencies, the Bank said.
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 picture in individual countries
The report's country tables show the strain spreading unevenly. India's external debt stood at $763.5 billion in 2025, up from $717.4 billion in 2024, according to the Bank's data.
In a separate commentary published on Thursday, Fu and World Bank data official Evis Rucaj argued that access to funding alone was insufficient — what matters is the cost of that funding and whether it leaves room for development spending.
What is not yet known: the report covers debt stocks and flows through the end of 2025. Whether the heavy bond issuance seen in early 2026 will ease or accelerate as global interest rates stay elevated is not yet clear, and the Bank's figures do not capture borrowing that governments have not reported to its Debtor Reporting System.
Frequently asked questions
What is external debt?
Money that a country's government and private sector owe to foreign lenders — other governments, multilateral institutions such as the World Bank and the IMF, and private creditors including bondholders and commercial banks. It is distinct from domestic debt, which is owed to lenders inside the country.
What is the International Debt Report?
An annual World Bank publication providing external debt statistics and analysis for low- and middle-income countries that report to the Bank's Debtor Reporting System. The 2026 edition analyses debt stocks and flows as of the end of 2025, examines debt dynamics and their policy implications, and updates the global debt-transparency agenda.
Why did developing-country debt rise so fast in 2025?
Three drivers, according to the Bank: a return of private lending and a reopening of bond markets, which pushed borrowing up; high interest rates, which raised the cost of servicing existing debt; and a weaker US dollar, which inflated the dollar value of debt denominated in other currencies.
What is IDA, and why does it matter here?
The International Development Association is the World Bank Group's arm for the poorest countries, offering concessional — below-market — financing. IDA-eligible countries are the most vulnerable borrowers, and the report shows their debt growing fastest and their borrowing costs at their highest since 1989.
What does this mean for ordinary people?
When governments spend more servicing debt, less remains for health, education, infrastructure and social protection. The Bank's central warning is that rising debt-service costs could force exactly that trade-off in the countries least able to afford it.
Key takeaways
- Developing countries' external debt hit a record $9.4 trillion in 2025, up 5.5% — the fastest rise since 2021.
- Private lending and bond issuance drove the increase, but the poorest countries paid the highest borrowing costs since 1989: 8.2% on new private loans and 9.4% on new bonds.
- Debt service reached $1.4 trillion in 2025, a fifth consecutive annual rise, and developing countries paid $436 billion more in servicing than they received in new financing between 2022 and 2025.
- Currency effects explain more than a quarter of the rise in public debt — the weaker dollar inflated the value of non-dollar debt.
- The World Bank warns that high debt burdens threaten to crowd out spending on health, education and infrastructure in the poorest countries.
What to watch next
Watch whether the heavy bond issuance seen in early 2026 continues as global interest rates stay elevated, and whether governments' strategy of issuing new bonds to buy back maturing debt actually reduces debt stocks or merely defers them at higher rates. The Bank is also pressing for greater transparency in debt records, so that repayment risks can be assessed and managed — a test of whether the next edition of the report shows the same pressures easing or deepening.
