Developing Nations Owe Record $9.4 Trillion as Private Credit Returns at Historic Cost
WASHINGTON — Developing countries’ external debt climbed 5.5% to a record $9.4 trillion in 2025, the World Bank reported Thursday, marking the fastest annual increase since 2021 and exposing how expensive the return of private lending has become.
The headline number describes more than a larger balance sheet. Low- and middle-income countries paid $1.4 trillion in principal and interest last year, the fifth consecutive annual increase. From 2022 through 2025, those countries sent creditors $436 billion more than they received in new financing.
That is a transfer on a scale capable of reshaping national budgets. Money sent abroad for debt service cannot simultaneously build power systems, schools, clinics, housing or climate defenses. The pressure lands hardest on states already paying a premium to borrow in the currencies controlled by richer economies.
The World Bank’s International Debt Report found that private creditors returned in force. Public bond issuance and other borrowing from private lenders jumped nearly 35% to $251 billion in 2025. The revival ended a retreat that followed the global inflation shock, rapid interest-rate increases and the wave of debt distress that began earlier in the decade.
But the money arrived at punishing prices. Countries eligible for the Bank’s low-income International Development Association window paid an average 8.2% on new private-creditor commitments—the highest rate since 1989—and 9.4% on new bonds. Their combined external debt rose 8.1% to $1.3 trillion.
That is how World Bank chief statistician Haishan Fu summarized the contradiction.
A rebound with a heavy bill
The report does record a partial reversal of the financing drought. Long-term debt flows to low- and middle-income countries moved from a net outflow of $118 billion in 2024 to a net inflow of $45 billion in 2025. That change gave governments access to capital after years in which repayments outran new lending.
Yet one positive year does not erase the four-year extraction. Bondholders alone received $363 billion in 2025. Reuters reported that the Bank now questions whether the new terms are sustainable and whether borrowed capital is reaching the people and projects that need it most.
The composition of the increase also matters. More than one-quarter of the $303 billion rise in public and publicly guaranteed external debt reflected the weaker US dollar, which inflated the dollar value of obligations denominated in other currencies. The rest came from new borrowing and accumulated liabilities.
That currency effect shows why the debt burden cannot be reduced to domestic discipline. Developing states borrow within a financial order they do not control: benchmark interest rates are set elsewhere, major contracts are priced in foreign currencies and investors demand higher returns from countries with the least fiscal room. When global conditions tighten, creditors protect their claims while public services absorb the adjustment.
Private money, public consequences
The return of private lending can finance useful investment. It can also lock governments into costly refinancing cycles if export earnings, tax revenue and project returns fail to keep pace with interest. The 9.4% average bond rate for the poorest borrowers leaves little margin for error.
Multilateral institutions remain a cheaper and more stable source of capital, especially for countries shut out of bond markets. But their resources have not expanded fast enough to replace private financing or prevent repeated restructurings. The result is a system in which nations most in need of development finance routinely pay the highest price for it.
The new figures should therefore sharpen the debate beyond the size of the debt stock. The decisive questions are who lent the money, on what terms, for which investments and whose living standards are cut when payments come due.
The World Bank calls the revival of private credit welcome. Its own numbers reveal the danger: capital has returned, but at rates that can consume the development it is supposed to finance. A record $9.4 trillion debt load is not evidence of abundant opportunity when the poorest borrowers face the costliest money in decades.
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