World Bank: Developing World Debt Surges to $9.4 Trillion
The external debt of developing nations surged to $9.4 trillion (€8.37 trillion) in 2025, a 5.5% increase that has sparked fresh warnings from the World Bank. While private credit is returning to low- and middle-income countries, the growing cost of servicing this debt is siphoning off critical resources needed for long-term development.
A Cycle of Borrowing and Higher Costs
The World Bank’s 2026 International Debt Report highlights a worrying trend: while access to financing has improved, the price of entering financial markets remains prohibitively high. Many governments are now trapped in a cycle of issuing new bonds simply to pay off maturing debt—a strategy that smooths out repayment schedules but fails to reduce overall debt balances.
“The return of private credit is welcome, but these countries are taking on more debt, paying more, and leaving fewer resources for development,” said Haishan Fu, Director of the World Bank’s Development Data Group. She emphasized that debt “must be managed responsibly” to avoid stifling economic growth.
Interest Rates Reach Decade Highs
The burden is particularly heavy for the world’s poorest nations. Countries eligible for the International Development Association (IDA) saw interest rates on new private credit commitments jump to 8.2% in 2025—the highest rate recorded since 1989. New bond issuances were even costlier, averaging a 9.4% interest rate.
In total, low- and middle-income countries paid a record $1.4 trillion in principal and interest in 2025. This marks the fifth consecutive annual rise in debt service payments, driven by persistently high global interest rates.
Sub-Saharan Africa at a Crossroads
The report underscores a deteriorating situation in Sub-Saharan Africa, where many Portuguese-speaking nations—including Mozambique, Guinea-Bissau, and Angola—are categorized as low- or middle-income. For these regional issuers, the average interest rate on public debt climbed from 8% in 2025 to 8.8% by mid-2026.
Compounding the problem is the shortening of loan terms. The average maturity for new securities in the region dropped from 10.4 years to 8.9 years. The World Bank warns that this combination of higher coupons and shorter deadlines creates an “adverse shift” that exacerbates fiscal instability and threatens essential investments in infrastructure and social services.
Market Hunger for Debt
Despite these challenges, demand for financing remains high. By August 2026, more than 10 countries had already exceeded the volume of bond issuances they had projected for the entire year. With international aid shrinking, many developing nations are forced to rely on these expensive market entries, further tightening the fiscal squeeze on the world’s most vulnerable economies.
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