Developing countries’ external debt hits record $9.4 trillion in 2025: World Bank

Washington: Developing countries’ external debt reached a record $9.4 trillion in 2025, the World Bank said, warning that renewed access to private finance was coming at borrowing costs that threatened essential development spending.

Debt rose 5.5 per cent, its fastest pace since 2021. Low- and middle-income countries paid $1.4 trillion in principal and interest during the year, the fifth consecutive annual increase, the International Debt Report 2026 said.

The pressure was particularly acute for countries eligible for concessional financing from the International Development Association, the World Bank’s arm serving poorer economies. Their external debt increased 8.1 per cent to $1.3 trillion.

These countries faced an average interest rate of 8.2 per cent on new commitments from private creditors, the highest since 1989. New bonds carried an average rate of 9.4 per cent.

By comparison, countries eligible only for non-concessional borrowing from the International Bank for Reconstruction and Development paid an average of 5.5 per cent on new bonds, down from 5.8 per cent a year earlier.

The figures show that the reopening of capital markets has not brought equally affordable financing to all borrowers.

World Bank Group Chief Statistician Haishan Fu welcomed the return of private lending but warned that larger borrowing and repayment obligations could leave fewer resources for development.

“Managing debt responsibly means giving everyone—including future generations—a chance to thrive,” she said in the bank’s release.

Public entities issued $251 billion in bonds, nearly 35 per cent more than in 2024. Many governments used new borrowing to repurchase debt approaching maturity, spreading repayments over time without substantially reducing the amount owed.

That refinancing often came at higher interest rates. Payments to bondholders reached $363 billion, partly reflecting buybacks and early repayments financed through new issues.

In a separate commentary published on Thursday, Fu and World Bank data official Evis Rucaj argued that access to funding alone was insufficient. They said financing needed to support productive investment and higher future incomes, rather than merely replace expensive existing debt.

The officials also linked debt pressures to household welfare. They said the report found that countries carrying heavier external debt burdens tended to experience greater deterioration in access to affordable healthy diets during external shocks.

Their warning extended to the quality of debt information. More varied creditors, guarantees and financing arrangements made it harder to establish a country’s complete obligations, they said.

They called for borrowers and lenders to reconcile their records, resolve discrepancies and disclose the information needed to assess repayment risks. Reliable records were necessary both for managing debt and for restructuring it when difficulties arose.

India’s external debt stood at $763.5 billion in 2025, against $717.4 billion in 2024, the bank’s country table showed. That represents growth of about 6.4 per cent. However, its debt-service-to-exports ratio fell to 9.8 per cent from 10.5 per cent.