The external debt of developing countries increased by 5.5% to a record $9.4-trillion in 2025, which is the fastest pace of increase since 2021 and about four times the 2022 to 2024 average, says international development organisation the World Bank Group in its ‘International Debt Report 2026’.

The report shows that access to international finance has improved, but the price of finance has not, and high debt burdens in the poorest countries threaten to crowd out essential investments in people.

Private financing drove much of the increase. 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, the World Bank says.

Access to international finance has improved, but the price of that finance has not. Low- and middle-income countries are borrowing more, paying more and, in many cases, leaving less for long-term development, says World Bank Group chief statistician and development data director Haishan Fu in the report.

The 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 yearly increase.

Payments to bondholders climbed to $363-billion, partly reflecting debt buybacks and prepayments financed through new bond issues.

This means that more public resources are being absorbed by servicing debt at a time when countries need to invest more in infrastructure, jobs, education, health and the foundations of long-term growth, she says.

Between 2022 and 2025, developing countries paid $436-billion more in debt service than they received in new financing. The direction shifted in 2025, as long-term debt flows turned from a $118-billion net outflow in 2024 to a net inflow of $45-billion, the report shows.

“Continued borrowing through international bond markets in 2026, despite elevated yields, raises important questions about whether the terms are sustainable and whether the capital raised is reaching the people and places that need it most,” she points out.

Additionally, 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).

Debt vulnerabilities are not simply a financial concern. When debt service constrains productive and social spending, the consequences can reach households through weaker investment, fewer opportunities and greater vulnerability to shocks.

The report finds that, during periods of external shocks, countries with heavier debt burdens tend to experience larger adverse changes in the share of people unable to afford a healthy diet, Fu says.

Further, better information must ultimately lead to better financing.

Countries bearing some of the greatest development burdens continue to face some of the steepest borrowing costs, which is a paradox that compounds their disadvantages at every turn, she says.

Financing that merely enables countries to roll over costly debt cannot substitute for financing that expands productive capacity and raises future incomes.

The objective should not be more debt, but better financing that is affordable, transparent, sustainable, and capable of supporting investment and growth, Fu says.

“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.

“Managing debt responsibly means giving everyone, including future generations, a chance to thrive,” she says.

“Access to finance is not enough. We must know the debt, understand its terms, and ensure that the financing developing economies receive strengthens rather than constrains their ability to grow, withstand shocks, and improve the lives of their people.”

Further, the report shows that 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 ten countries had exceeded their full-year 2025 issuance, while several others returned to international markets, the report notes.

Further, IDA-eligible countries paid an average of 8.2% on new private-creditor commitments in 2025, which is 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, the World Bank points out.

By comparison, countries eligible for only non-concessional loans from the World Bank Group’s International Bank for Reconstruction and Development paid an average of 5.5% on new bonds, which is an improvement from the 5.8% rate the previous year, it says.

Additionally, currency movements also played a role in the reported increase. More than one-quarter of the $303-billion increase in public and publicly guaranteed debt reflected the weaker 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, the World Bank says.