Developing countries' external debt surged to a record $9.4 trillion in 2025, the World Bank disclosed in its International Debt Report 2026, warning that the renewed flow of private capital was arriving at borrowing costs steep enough to crowd out essential development spending. The figure marks a 5.5% rise — the fastest pace of increase since 2021.

Key Figures and Repayment Pressure

Low- and middle-income countries paid a combined $1.4 trillion in principal and interest during the year, the fifth consecutive annual increase in debt-service obligations. The burden was sharpest for nations eligible for concessional financing through the International Development Association (IDA) — the World Bank's lending arm for the world's poorest economies — whose external debt climbed 8.1% to $1.3 trillion.

These IDA-eligible countries faced an average interest rate of 8.2% on new private-sector commitments, the highest level recorded since 1989. New bonds issued by these governments carried an even steeper average rate of 9.4%. By contrast, countries that borrow exclusively on non-concessional terms from the International Bank for Reconstruction and Development (IBRD) paid an average of 5.5% on new bonds, easing slightly from 5.8% a year earlier.

Refinancing Without Relief

Public entities across developing economies issued $251 billion in bonds during the period — nearly 35% more than in 2024. Much of this new borrowing was used to refinance maturing obligations, spreading repayments over time without materially reducing the overall debt stock. That strategy frequently locked in higher interest rates than the original debt carried, pushing payments to bondholders to $363 billion, partly reflecting buybacks and early repayments funded through fresh bond issues.

World Bank's Warning on Development Trade-Offs

World Bank Group Chief Statistician Haishan Fu welcomed the resumption of private lending to developing markets but cautioned that larger repayment obligations would inevitably compete with investment in health, education, and infrastructure. "Managing debt responsibly means giving everyone — including future generations — a chance to thrive," she said in the bank's release.

In a separate commentary, Fu and World Bank data official Evis Rucaj argued that access to capital alone was insufficient. They stressed that new financing must underpin productive investment and higher future incomes, rather than simply roll over expensive existing obligations. Notably, the report found that countries with heavier external debt burdens tended to experience sharper deterioration in access to affordable healthy diets during economic shocks — linking sovereign balance sheets directly to household welfare.

Transparency Gap and India's Position

The two officials raised a separate concern about data quality. As creditor bases diversify and financing structures grow more complex — encompassing guarantees, hybrid instruments, and multilateral arrangements — establishing a country's complete debt picture becomes increasingly difficult. They urged borrowers and lenders alike to reconcile their records, resolve discrepancies, and disclose information necessary to assess repayment risks, noting that reliable data was indispensable both for routine debt management and for restructuring when distress arose.

On India, the World Bank's country data showed external debt at $763.5 billion in 2025, up from $717.4 billion in 2024 — a rise of approximately 6.4%. However, India's debt-service-to-exports ratio improved, easing to 9.8% from 10.5% the prior year, suggesting that export earnings grew faster than debt repayment obligations — a relatively reassuring signal amid a broadly challenging global picture.

With borrowing costs for the poorest nations at their highest in more than three decades, the report's findings will intensify pressure on the international community to expand concessional finance and accelerate debt-relief frameworks ahead of major multilateral discussions in the coming year.