Developing countries’ external debt rose to a record $9.4tn in 2025, marking its fastest annual increase since the COVID-19 pandemic, according to the World Bank.
The surge was largely driven by increased reliance on private financing, with borrowing from private creditors and bond issuance by public enterprises rising by nearly 35 per cent, the Bank’s annual International Debt Report revealed.
The report showed that external debt increased most sharply among countries classified by the World Bank as the most vulnerable, raising concerns about their ability to finance essential development projects while meeting growing repayment obligations.
“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 World Bank said in a statement.
The Bank’s Chief Statistician, Haishan Fu, described the return of private lending to low- and middle-income countries as a welcome development but warned that the rising cost of borrowing was placing additional pressure on their economies.
“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,” Fu said.
The report also highlighted how several governments had resorted to issuing new bonds to repay maturing debt, a practice that effectively postpones repayment obligations while exposing countries to potentially higher interest rates.
Private creditors generally charge higher interest rates than multilateral financial institutions such as the World Bank and the International Monetary Fund.
According to the report, the poorest developing countries paid an average interest rate of 8.2 per cent on new loans and bonds obtained from private lenders in 2025, the highest level recorded for that category since 1989.
The World Bank warned that debt-servicing obligations remained severe amid persistently high global interest rates.
Low- and middle-income countries collectively paid approximately $1.4tn in loan repayments and interest in 2025, representing a 1.9 per cent increase and the fifth consecutive annual rise.
The report further disclosed that between 2022 and 2025, developing countries paid $436bn more in debt servicing than they received in new financing, highlighting the growing imbalance between their repayment obligations and access to fresh funds.
Fu warned that mounting debt levels were leaving developing economies increasingly vulnerable to global economic shocks, limiting their capacity to respond to unexpected crises.
He noted that developing countries had faced several economic disruptions in recent years, including the COVID-19 pandemic, inflationary pressures linked to conflicts in Ukraine and Iran, and disruptions to global trade arising from US tariff policies.
According to him, the combination of rising borrowing costs, heavy debt repayments and heightened global uncertainty was leaving many developing economies with fewer resources to invest in infrastructure, education, healthcare and other critical areas of long-term development.
