Gökhan Ergöçün
05 November 2026•Update: 05 November 2026
- Total debt of low- and middle-income economies grows 5.5%, marking fastest increase since 2021
- Poorest countries face average private borrowing costs of 8.2%, highest level since 1989, report reveals
The external debt stock of developing countries climbed 5.5% to a record $9.4 trillion in 2025 as private creditors returned to emerging markets and bond issuance rebounded, according to a World Bank report released Thursday.
The annual increase marked the fastest expansion since 2021 and was roughly four times the 0.5% average annual growth recorded between 2022 and 2024, the Washington-based lender said in its International Debt Report 2026.
Although access to global financial markets improved, borrowing costs remained historically elevated, threatening to crowd out critical investments in health care, education and infrastructure across the poorest nations.
"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, chief statistician of the World Bank Group.
"Managing debt responsibly means giving everyone — including future generations — a chance to thrive," Fu added.
Private creditors drive borrowing rebound
Private financing drove the bulk of the expansion in 2025, with public-sector bond issuance climbing 34.6% to $250.6 billion, the highest volume since 2021.
Total debt owed by low- and middle-income countries to private creditors rose 5.2% to $5 trillion, accelerating sharply from the 0.6% growth recorded in 2024.
Excluding China, which accounts for nearly one-quarter of developing countries' debt and reduced its external borrowing by 4.3% to $2.3 trillion, external debt stocks across middle-income countries rose 9.1% to $6.9 trillion.
Net debt inflows to developing countries more than doubled to $423.5 billion in 2025, driven by $251.1 billion in long-term net inflows from private lenders.
A weaker US dollar also amplified headline figures, accounting for 28.2% of the $301.8 billion increase in public and publicly guaranteed external debt through currency valuation effects.
Debt costs surge for poorest nations
The report highlighted a growing divergence in financing terms, with the poorest nations bearing the steepest borrowing costs.
Countries eligible for concessional financing from the World Bank's International Development Association saw their external debt stock jump 8.1% to $1.3 trillion in 2025.
These nations faced an average interest rate of 8.2% on new commitments from private creditors — the highest level since 1989 — and paid an average coupon of 9.4% on new bond issuances.
The interest rate gap between private and official lending for these vulnerable borrowers widened to 5.5 percentage points in 2025 from 3.4 percentage points a decade earlier.
In contrast, middle-income nations borrowing from the International Bank for Reconstruction and Development saw borrowing costs ease slightly, paying an average of 5.5% on new bond issues, down from 5.8% in 2024.
Debt servicing pressures mount
Developing countries paid a record $1.4 trillion in principal and interest payments in 2025, up 1.9% year-on-year, marking a fifth consecutive annual increase.
Payments to bondholders climbed 13.7% to $363.1 billion, partly reflecting debt buybacks and early refinancing operations.
Fourteen developing nations executed sovereign bond buyback and exchange transactions totaling $34.5 billion in 2025 to manage upcoming redemption cliffs and extend repayment profiles.
Between 2022 and 2025, developing economies transferred $436.1 billion more in debt service payments than they received in new external financing.
However, the flow dynamic shifted in 2025, as net long-term debt transfers turned positive, with an inflow of $45.4 billion following three consecutive years of net outflows.
