External Debt Of Developing Countries At Record $9.4 Trillion In 2025
Many governments issued new bonds to buy back maturing debt, smoothing repayment profiles without significantly reducing debt stocks, often at higher interest rates
Chennai: External debt of developing countries jumped 5.5% to a record $9.4 trillion in 2025, the fastest pace since 2021 and about four times the 2022–24 average. High debt burdens in the poorest countries threaten to crowd out essential investments in people, finds the World Bank.
Borrowing from private creditors jumped and bond issuance from public entities rose nearly 35% to $251 billion, the highest level in five years as markets reopened to many developing countries. External debt grew fastest among the most vulnerable countries, increasing 8.1% to $1.3 trillion in countries eligible for concessional financing from the World Bank Group’s International Development Association (IDA).
Many governments issued new bonds to buy back maturing debt, smoothing repayment profiles without significantly reducing debt stocks, often at higher interest rates. Early 2026 data show continued demand for international bond financing from low- and middle-income countries despite the high costs. By mid-August, more than 10 countries had exceeded their full-year 2025 issuance, while several others returned to international markets.
IDA-eligible countries paid an average of 8.2% on new private-creditor commitments in 2025—the highest rate since 1989—and 9.4% on new bonds. The gap between the rates IDA-eligible countries paid to official and private creditors widened from 3.4 percentage points in 2016 to 5.5 percentage points in 2025.
Debt-service pressures remained severe amid elevated global interest rates. Low- and middle-income countries paid $1.4 trillion in principal and interest in 2025, up 1.9% and marking a fifth consecutive annual increase. Payments to bondholders climbed to $363 billion, partly reflecting debt buybacks and prepayments financed through new bond issues.
Between 2022 through 2025, developing countries paid $436 billion more in debt service than they received in new financing. The direction shifted in 2025, however, as long-term debt flows turned from a $118 billion net outflow in 2024 to a net inflow of $45 billion.
Currency movements also played a role in the reported increase. More than a quarter of the $303 billion increase in public and publicly guaranteed debt reflected the weaker US dollar, which raised the dollar value of debt denominated in other currencies. For several of the largest concessional borrowers, these currency effects outweighed the principal they repaid in 2025, leaving reported debt higher despite continued servicing.
