Low- and middle-income countries are borrowing more and paying more for new debt, with external debt surging 5.5 per cent 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".
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. It said access to international finance had improved, but the poorest developing countries were paying a steep 8.2 per cent on new private-creditor commitments on average, the highest rate since 1989, and 9.4 per cent on new bonds.
By contrast, countries that were not eligible for low- and zero-interest loans under the International Development Association (IDA) paid an average of 5.5 per cent on new bonds, down from 5.8 per cent in 2024, the bank said. 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.
The report said developing countries' borrowing from private creditors and bond issuance from public entities rose nearly 35 per cent to $251 billion, the highest level in five years. External debt grew fastest among IDA-eligible countries, rising 8.1 per cent 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 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."
The World Bank emphasized that the current trajectory of borrowing is unsustainable for many nations. As global interest rates remain elevated, the cost of servicing this debt is consuming a larger portion of national budgets, leaving little room for social safety nets or climate change adaptation.
Economists suggest that without significant debt restructuring or concessional financing, many of these nations risk falling into a cycle of perpetual debt distress. The report serves as a stark warning to global policymakers that the current financial architecture is failing to provide the necessary support to the world's most vulnerable economies.
Furthermore, the reliance on private creditors, which often carry shorter maturity periods and higher interest rates, exacerbates the liquidity crisis. The World Bank urged international creditors to prioritize transparency and sustainable lending practices to ensure that developing nations can achieve long-term economic stability.
As the global community looks toward 2026, the focus remains on whether these countries can stabilize their fiscal positions. The World Bank's data underscores the urgent need for a coordinated international response to address the systemic risks posed by the record-breaking debt levels.
Ultimately, the goal of international financial institutions must be to foster an environment where developing nations can invest in their own growth rather than merely servicing the interest on their mounting external obligations.