The external debt carried by low- and middle-income nations climbed 5.5 per cent to reach a historic $9.4 trillion over the course of 2025, according to World Bank figures detailed in Reuters coverage published on November 5.
That expansion marks the largest annual increase recorded since 2021, driven in part by currency dynamics. A weaker United States dollar accounted for more than 28 per cent of the overall rise in developing countries’ external obligations by inflating the dollar value of debt denominated in alternative currencies, the report states.
Poorer developing nations faced compounding pressures from private lenders, paying an average interest rate of 8.2 per cent on new commitments—the steepest borrowing cost recorded since 1989. On new sovereign bonds, those same vulnerable governments confronted an average rate of 9.4 per cent.
By contrast, nations positioned above the threshold for the International Development Association’s zero- and low-interest loans secured new bonds at an average of 5.5 per cent, down slightly from 5.8 per cent in 2024, Reuters reported. Overall borrowing through private creditors and public bond issuances surged nearly 35 per cent to hit $251 billion, marking a five-year high.
External obligations for countries eligible for IDA support grew 8.1 per cent to reach $1.3 trillion. Simultaneously, total debt service obligations—covering both principal and interest—climbed for the fifth year to reach $1.4 trillion.
Outflows to private creditors alone rose 13.7 per cent to total $363 billion. Across a four-year window from 2022 through 2025, developing nations transferred $436 billion more in debt service payments than they absorbed in fresh financing, although 2025 itself registered a modest net inflow of $45 billion.
The acceleration of borrowing pace proved pronounced in several markets, with more than 10 countries exhausting their entire projected annual issuance allocations by mid-August. The World Bank cautioned that elevated debt service burdens threaten to suppress domestic investment and leave developing economies increasingly exposed to external shocks.
The institution pressed for enhanced transparency, rigorous reporting standards, and concerted efforts to eliminate blind spots in financial data. The proliferation of novel creditors, complex financial instruments, and state guarantees has rendered total sovereign debt exposure increasingly difficult to map accurately.
Managing debt responsibly means giving everyone, including future generations, a chance to thrive,
said Haishan Fu, the World Bank’s chief statistician.
For African economies, many of which rely heavily on international capital markets, private lenders, and IDA support structures, the escalating refinancing costs compound existing vulnerabilities. Governments must manage these elevated borrowing premiums alongside persistent currency fluctuations and volatile commodity markets.
