Developing World’s External Debt Hits Record $9.4 Trillion as Costs Mount

Synopsis

The World Bank's International Debt Report 2026 finds that external debt in developing countries increased by 5.5% to reach a record high of USD 9.4 trillion in 2025, the largest increase since 2021. The rise was led by private lenders and bond markets, and the poorest countries had their highest rates on new private loans since 1989. Debt service consumed $1.4 trillion and a weaker dollar led to an exaggerated stock. Separately, UNCTAD finds 51 developing countries spend more on interest than on health or education.

The World Bank Group (WBG) released its International Debt Report 2026 on November 5 in Washington, reporting that external debt for developing countries increased by 5.5% to a record high of $9.4 trillion in 2025, the highest increase since 2021, which is approximately four times the average growth rate from 2022 to 2024.

Conditions for the return of private capital are improved, at a higher price

Much of the increase was fuelled by private financing. Markets re-opened to many developing countries and the volume of public entity bond issues increased almost 35% to reach $251 billion, the highest level in five years. Debt has increased at the fastest rate in countries that qualify for the Bank's concessional International Development Association (IDA) window, which saw an increase of 8.1% to $1.3 trillion.

Getting in cost a lot of money. In 2025, the average interest paid by IDA-eligible countries on new private-creditor commitments was 8.2%, compared with 9.4% on new bonds—for the highest level since 1989. If a country is only eligible for non-concessional IBRD loans, they pay 5.5% on new bonds. The Bank simply stated: “Access to finance has improved, but the cost of finance has not.”

Repayments weigh heavily

In 2025, LICs in low and middle income countries paid $1.4 trillion in principal and interest, an increase of 1.9%, and the fifth annual increase in a row. Payments to private creditors jumped 13.7% to $363 billion. The net amount that developing countries paid in debt service increased from $436 billion in 2022–25 due to net outflows of $118 billion in long-term flows in 2024 and a net inflow of $45 billion in the same period in 2025.

Many governments issued new bonds to replace their debt that was coming up for renewal, with debt stocks not necessarily being lowered, and frequently at higher interest rates.

Totals were also influenced by exchange rates. The decline in the value of the US dollar made up over 25 percent of the $303 billion rise in public and publicly guaranteed debt.

The meaning of the numbers for public services

In October, UN trade body UNCTAD released its A World of Debt 2026, which looks at the public-finance side. Interest costs on public debt for developing countries increased from $363 billion in 2010 to almost $1 trillion in 2025.

Home to 3.7 billion people, home to interest in 51 developing countries; more than government investment in health or education. UNCTAD estimates that a reduction in interest rates to rates of developed countries would save approximately $500 billion per year.

The heavy debt burden of countries was also associated with a higher proportion of people unable to afford a healthy diet in the event of external shocks, the World Bank's report finds. The case is made similar at the national level by civil-society groups. In June, ActionAid Kenya Interim Programmes and Strategy lead Kitasi Wanga stated that Kenya would not be able to attain sustainable development if “debt repayments continue to take precedence over investments in people”.

The outlook

The demand for loans has not abated. As of mid-August, the issuance was 119 percent of the total for the full year 2025 in more than 10 countries. The Bank has demanded a greater degree of transparency, as new lenders, instruments and guarantees can help to mask a country's total exposure.

The open question posed by the Bank is whether the conditions of this borrowing are viable and whether it gets to the people and places that need it most.