Developing Countries' External Debt Hits $9.4 Trillion Record in 2025: World Bank
World Bank Report Highlights Rising Debt and Its Implications
By Andrea Shalal
Record Surge in External Debt
WASHINGTON, Nov 5 (Reuters) - Low- and middle-income countries are borrowing more and paying more for new debt, with external debt surging 5.5% to a record $9.4 trillion in 2025, the World Bank said on Thursday.
The Washington-based lender said borrowing through international bond markets had continued in 2026, raising critical questions about "whether the terms are sustainable and whether the capital raised is reaching the people and places that need it most."
Impact on Development and Investment
In its annual International Debt Report, the Bank said the jump in external debt in 2025 — the largest annual increase since 2021, just after the COVID pandemic — threatened to crowd out essential investments in education, infrastructure, health and jobs.
Rising Borrowing Costs
It said access to international finance had improved, but the poorest developing countries were paying a steep 8.2% on new private-creditor commitments on average, the highest rate since 1989, and 9.4% on new bonds.
By contrast, countries that were not eligible for low- and zero-interest loans under the International Development Association paid an average of 5.5% on new bonds, down from 5.8% in 2024, the bank said.
Concerns from Financial Institutions
Officials from the World Bank and other international financial institutions have been sounding the alarm in recent months about high debt levels and the adverse impact of higher interest rates on developing countries.
Trends in Borrowing and Debt Issuance
The report said developing countries' borrowing from private creditors and bond issuance from public entities rose nearly 35% to $251 billion, the highest level in five years. External debt grew fastest among IDA-eligible countries, rising 8.1% to $1.3 trillion in 2025.
Private Lending Returns
“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,” said Haishan Fu, the World Bank's chief statistician. “Managing debt responsibly means giving everyone—including future generations—a chance to thrive.”
Bond Issuance and Repayment Profiles
The report showed that many governments issued new bonds to buy back maturing debt, extending their repayment profiles, often at higher interest rates and without significantly reducing debt stocks. Demand was continuing to rise this year despite the high costs. By mid-August, more than 10 countries had exceeded their full-year 2025 issuance, while several others returned to international markets, it said.
Debt Service and Financial Flows
Low- and middle-income countries paid $1.4 trillion in principal and interest in 2025, the fifth consecutive annual increase. That was fueled by a 13.7% increase in payments to private creditors to $363 billion, it said.
Developing countries paid $436 billion more in debt service than they received in new financing form 2022 to 2025, but the dynamics changed in 2025, with the report citing a net inflow of $45 billion.
Currency Fluctuations and Debt Burdens
The dollar's dramatic depreciation was another huge factor that hit developing countries hard, raising the dollar value of debt denominated in other currencies. The lower dollar accounted for over 28% of the increase in developing countries' debt, and several of the largest borrowers from reduced-interest facilities saw higher debt stock balances at the end of 2025 despite continued debt service payments.
Risks and Recommendations
Socioeconomic Risks
The report warned that higher debt service costs could result in weaker investment, fewer opportunities and greater vulnerability to shocks in developing countries, adding that countries with heavier debt burdens tended to see more people unable to afford a healthy diet when external shocks hit.
Calls for Greater Transparency
The bank also pushed for continued efforts to increase transparency about debt arrangements, strengthen standards and close data gaps, noting that new creditors, instruments, guarantees and financing arrangements could make it difficult to understand a country's full debt exposure.
Need for Improved Data and Standards
(Reporting by Andrea Shalal; editing by Lincoln Feast.)
