Developing countries’ external debt surged to a record $9.4 trillion in 2025, with repayments reaching $1.4 trillion..reports Asian Lite News Desk
Developing countries’ external debt climbed to a record $9.4 trillion in 2025, with the World Bank warning that rising borrowing costs and mounting repayment obligations are putting pressure on essential development spending.
Debt across low- and middle-income countries increased by 5.5 per cent, marking its fastest annual rise since 2021. These nations paid a combined $1.4 trillion in principal and interest during the year, the fifth consecutive annual increase, according to the World Bank’s International Debt Report 2026.
The report highlighted growing financial pressures on countries eligible for concessional financing from the International Development Association (IDA), the World Bank institution supporting the world’s poorest economies.
External debt among these countries rose 8.1 per cent to $1.3 trillion. They also faced an average interest rate of 8.2 per cent on new commitments from private creditors, the highest level since 1989. New bond issuances carried an average interest rate of 9.4 per cent.
In comparison, countries eligible only for non-concessional borrowing through the International Bank for Reconstruction and Development paid an average of 5.5 per cent on new bonds, down from 5.8 per cent in the previous year.
The figures underline the unequal cost of accessing international capital, with poorer economies facing significantly higher borrowing expenses despite the reopening of financial markets.
World Bank Group Chief Statistician Haishan Fu welcomed the return of private lending but cautioned that increased borrowing and repayment obligations could leave governments with fewer resources for development priorities.
“Managing debt responsibly means giving everyone—including future generations—a chance to thrive,” she said in a statement released by the bank.
Higher borrowing costs deepen debt pressures
Public entities issued $251 billion in bonds in 2025, nearly 35 per cent more than in 2024. Several governments used the proceeds to repurchase debt approaching maturity, allowing them to spread repayments over a longer period without significantly reducing their overall debt burden.
However, refinancing often came at higher interest rates. Payments to bondholders reached $363 billion during the year, partly reflecting debt buybacks and early repayments financed through fresh bond issuances.
In a separate commentary published on Thursday, Fu and World Bank data official Evis Rucaj stressed that access to financing alone was not enough to address the challenges facing developing economies.
They argued that borrowing should support productive investments and generate higher future incomes rather than simply replace existing debt at more expensive rates.
The officials also highlighted the impact of external debt pressures on household welfare. According to the report, countries with heavier external debt burdens tended to experience greater deterioration in access to affordable, healthy diets during external shocks.
They further warned that the growing diversity of creditors, guarantees and financing arrangements had made it increasingly difficult to establish the full extent of countries’ financial obligations.
The World Bank officials called on borrowers and lenders to reconcile their records, address discrepancies and improve disclosure of information needed to assess repayment risks.
Reliable debt information, they said, was essential for effective debt management and for facilitating restructuring when countries encounter financial difficulties.
India’s external debt rises to $763.5 billion
India’s external debt increased to $763.5 billion in 2025, up from $717.4 billion in 2024, according to the World Bank’s country-level data.
The increase represents annual growth of approximately 6.4 per cent. However, India’s debt-service-to-exports ratio improved to 9.8 per cent in 2025, compared with 10.5 per cent a year earlier.
The World Bank’s findings highlight the growing challenges facing developing economies as they navigate higher borrowing costs, refinancing pressures and competing demands for public spending.
