Low- and middle-income countries are taking out more loans and paying more for new debt, with external debt rising 5.5% to a record $9.4 trillion in 2025, the World Bank reported on Thursday (5).
It said lending through international bond markets will continue into 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."
In the Annual International Debt Report, the Bank stated that the jump in external debt in 2025 — the largest annual increase since 2021, shortly after the Covid-19 pandemic — threatens to harm essential investments in education, infrastructure, health and jobs.
The bank noted that access to international financing has improved, but the poorest developing countries are paying, on average, 8.2% interest on new commitments to private creditors — the highest rate since 1989 — and 9.4% on new bonds.
In contrast, countries that do not qualify for low-interest or zero-interest loans under the IDA (International Development Association) pay, on average, 5.5% on new bonds, a drop from the 5.8% recorded in 2024, the bank reported.
Officials at the World Bank and other international financial institutions have been warning in recent months about high debt levels and the adverse impact of higher interest rates on developing countries.
The report indicated that developing country borrowing from private lenders and bond issuances by public entities increased by nearly 35% to $251 billion, the highest level in five years. External debt grew the fastest among IDA-eligible countries, rising 8.1% to $1.3 trillion in 2025.
"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, committing fewer resources to long-term development," said Haishan Fu, chief statistician at the World Bank.
"Managing debt responsibly means giving everyone — including future generations — the chance to prosper."
The report showed that many governments issued new bonds to buy back maturing debt, extending their payment terms, often at higher interest rates and without significantly reducing debt balances.
Demand continues to grow this year, despite high costs. As of mid-August, more than ten countries had already exceeded their full-year 2025 emissions target, while several others had returned to international markets, according to the report.
Low- and middle-income countries paid $1.4 trillion in principal and interest in 2025, the fifth consecutive annual increase. This was driven by a 13.7% increase in payments to private creditors, which reached $363 billion, according to the report.
Developing countries paid $436 billion more in debt service than they received in new financing from 2022 to 2025, but the dynamic changed in 2025, with the report citing a net inflow of $45 billion.
The dramatic devaluation of the dollar was another important factor that strongly affected developing countries, increasing the dollar value of debt denominated in other currencies. The devaluation of the dollar was responsible for more than 28% of the increase in developing country debt, and several of the largest borrowers of low-interest lines of credit recorded higher debt stock balances at the end of 2025, despite continued debt service payments.
The report warned that higher debt servicing costs could result in lower investment, fewer opportunities and greater vulnerability to shocks in developing countries.
The institution also advocated continued efforts to increase transparency about debt agreements, strengthen standards and fill data gaps, noting that new creditors, instruments, guarantees and financing arrangements could make it difficult to understand a country's total debt exposure.
