World Bank Says Developing Countries' External Debt Hit Record $9.4 Trillion in 2025

Developing countries accumulated a record $9.4 trillion in external debt in 2025, an increase of 5.5% from the previous year, as international lending recovered despite borrowing costs remaining at their highest levels in decades for the poorest economies. The World Bank's International Debt Report 2026, released on 5 November, shows that developing countries paid $1.4 trillion in principal and interest during the year, while countries eligible for concessional financing faced average private borrowing rates of 8.2%, the highest since 1989. The findings highlight the growing cost of financing development at a time when African governments are seeking capital for infrastructure, industrialisation and economic expansion. The World Bank's latest international debt assessment reveals a major increase in borrowing across developing economies, with external debt rising 5.5% to a record $9.4 trillion in 2025, the fastest annual expansion since 2021. The increase was approximately four times the average annual growth recorded between 2022 and 2024 and coincided with the return of private creditors to international lending markets. Public sector international bond issuance increased nearly 35% to approximately $251 billion, its highest level in five years, while outstanding external debt owed to private creditors rose 5.2% to approximately $5 trillion. Net debt inflows more than doubled to $423.5 billion, reflecting renewed demand for developing country debt and improved access to international financial markets after several years of restricted borrowing conditions. However, the recovery in lending has come at considerable expense for countries with weaker sovereign credit profiles. The World Bank reports that economies eligible for financing from the International Development Association (IDA), which include many countries in Eastern, Central and Southern Africa, paid an average interest rate of 8.2% on new commitments from private creditors in 2025, the highest since 1989. For newly issued international bonds, the average interest rate reached 9.4%, compared with 5.5% for countries eligible only for financing from the World Bank's International Bank for Reconstruction and Development (IBRD). The difference illustrates how countries with the greatest infrastructure requirements and more limited domestic financial resources can face substantially higher costs when seeking capital from international investors. The findings also reflect the changing relationship between new borrowing and existing repayment obligations. Although developing economies are issuing more bonds and attracting greater private lending, much of the financing is being used to refinance maturing obligations, extend repayment schedules and manage immediate financial pressures. Governments that previously struggled to access international bond markets have been able to return, but new borrowing frequently carries higher interest rates than the debt being replaced. This means that improved market access can ease short term repayment pressures while leaving governments with substantial interest obligations that continue to absorb public revenue over subsequent years. The World Bank estimates that developing countries paid approximately $436 billion more in external debt service than they received in new financing between 2022 and 2025, demonstrating the scale of financial resources transferred to creditors during a period of elevated international interest rates. Although debt flows improved during 2025, the cumulative experience illustrates the financing constraints facing governments seeking to expand infrastructure and public services. For African economies, the report reinforces the importance of examining borrowing costs, repayment schedules, creditor composition and the productivity of financed investments alongside the overall size of public debt. Private Borrowing Costs Reach Their Highest Levels Since 1989 for the Poorest Economies The World Bank's findings show that the reopening of international capital markets has produced markedly different borrowing conditions for developing economies. Countries with stronger credit ratings, diversified export earnings and established access to international investors can generally obtain financing on more favourable terms than economies considered more vulnerable to external shocks. For IDA eligible countries, the average interest rate of 8.2% on new private creditor commitments represents the highest level in 36 years, while the average 9.4% interest rate on new bonds illustrates the substantial premium required by investors financing governments with weaker credit profiles. The difference between official and private lending costs has also increased considerably. In 2016, the average interest rate charged by private creditors to IDA eligible economies exceeded the corresponding official creditor rate by 3.4 percentage points. By 2025, that difference had widened to 5.5 percentage points, creating a significant distinction between financing obtained from development institutions and loans or bonds issued through commercial markets. Official creditors, including multilateral development banks and bilateral lenders, often provide financing on terms intended to support economic development, while private investors price their lending according to market conditions, sovereign creditworthiness and expected financial returns. The consequences become substantial when applied to the financing of major public investments. A government borrowing $1 billion at an annual interest rate of 9.4% would face $94 million in annual interest on the full outstanding principal, compared with $55 million at 5.5%, before accounting for principal repayment and other financing charges. The $39 million difference represents resources that would otherwise remain available for infrastructure, public services or additional investment. For countries undertaking railway construction, electricity generation projects, port development and other capital intensive investments, financing terms can materially influence the total public cost of infrastructure over its operating life. The report also identifies considerable differences in the conditions faced by individual African borrowers. The Republic of Congo, for example, issued commercial debt carrying a borrowing cost of approximately 13.88%, significantly above the average for IDA eligible economies. Kenya's October 2025 international bond issuance included yields of 8.2% and 9.2%, reflecting the premium investors required despite the country's established presence in international capital markets. These borrowing costs demonstrate how sovereign financing conditions vary across African economies and why access to international lending does not automatically translate into affordable capital. The financing environment has remained demanding into 2026. According to the World Bank's assessment, the average coupon on public bonds issued by Sub Saharan African countries increased to approximately 8.8% through mid August 2026, compared with 8.0% in 2025, while average maturities shortened from 10.4 years to 8.9 years. Higher interest rates increase annual debt servicing requirements, while shorter maturities mean governments must return to financial markets more frequently to refinance outstanding obligations. The combination places greater emphasis on maintaining investor confidence, managing public finances and developing sufficiently productive economic activities to support repayment. Kenya, Zambia, Ethiopia and Angola Illustrate Africa's Different Debt Financing Pressures The World Bank's $9.4 trillion external debt figure covers developing countries worldwide, but several African economies illustrate the financial conditions described in the report. Kenya provides a particularly relevant example because it combines an established domestic banking system, relatively developed capital markets and continued access to international investors with substantial public debt and elevated interest payments. The World Bank's November 2026 Kenya Economic Update projects public debt at approximately 71.1% of GDP in 2026, while interest payments absorbed 33.6% of government revenue in the 2025/26 financial year. Kenya's economic growth is projected at 4.6% in 2026, but the country's fiscal position continues to constrain the resources available for infrastructure investment, public services and other development priorities. Kenya's financing challenge is increasingly connected to the cost of maintaining access to both domestic and international creditors. Domestic borrowing accounted for most of the government's fiscal deficit financing in 2025/26, increasing the exposure of commercial banks to sovereign debt while limiting the financial resources available for lending to private businesses. International bonds provide access to foreign currency financing and allow the government to manage external repayment obligations, but the interest rates required by investors influence how much future revenue must be allocated to debt servicing. The country's experience demonstrates how an economy can maintain access to financial markets while facing substantial constraints on public investment because of the accumulated cost of borrowing. Zambia illustrates a different stage of the sovereign debt cycle. Following its 2020 sovereign default, the country entered a prolonged process of restructuring obligations owed to official and private creditors, negotiating new repayment terms while attempting to restore fiscal stability and regain access to international financing. Debt restructuring can reduce immediate repayment requirements, extend maturities and improve the government's financial position, but rebuilding access to affordable credit requires sustained improvements in fiscal performance, export earnings and investor confidence. Zambia's position is particularly relevant because its copper mining industry generates foreign exchange earnings that influence the country's capacity to service external obligations, while infrastructure development and electricity supply remain essential to expanding mineral production and economic activity. Ethiopia has also been pursuing debt restructuring alongside monetary and foreign exchange reforms, reflecting the financial challenges facing an economy undertaking major infrastructure and industrial investments while managing foreign currency shortages and substantial external obligations. Its restructuring negotiations involve several creditor groups and form part of a wider effort to stabilise public finances, improve foreign exchange availability and create conditions for renewed investment. The country's experience illustrates how debt management can become closely connected to exchange rate policy, trade performance and the availability of international financing, particularly where the government has relied heavily on external capital to support infrastructure and state led development. Angola faces a different financing structure because its capacity to generate foreign currency is strongly connected to petroleum exports. Oil revenue provides an important source of government income and external liquidity, but changes in international petroleum prices can influence fiscal receipts, exchange rate conditions and the resources available for servicing external debt. Governments with substantial commodity earnings may be able to support larger external obligations during periods of favourable export prices, while weaker commodity markets can reduce their ability to meet financing requirements without adjusting public expenditure or increasing borrowing. The Republic of Congo offers another example of how sovereign risk affects the cost of borrowing. Its reported commercial financing cost of 13.88% reflects an expensive market environment in which debt refinancing and new investment must be assessed against a substantial interest burden. Together, these African examples demonstrate why public debt cannot be evaluated solely through debt relative to GDP. Countries with similar debt ratios can face different financing conditions depending on export concentration, domestic revenue collection, creditor composition, repayment schedules, exchange rate exposure and the interest rates attached to outstanding obligations. Developing Countries Paid $1.4 Trillion in Debt Service as Refinancing Accelerated The World Bank reports that low and middle income countries paid approximately $1.4 trillion in principal and interest on external debt during 2025, an increase of 1.9% and the fifth consecutive annual rise. Payments to private bondholders increased by 13.7% to approximately $363 billion, partly reflecting the growing use of debt buybacks, early repayments and refinancing transactions. The increase occurred during a year in which international lending activity also recovered, indicating that governments were simultaneously attracting new capital and directing substantial financial resources towards meeting existing obligations. Between 2022 and 2025, developing economies paid approximately $436 billion more in debt service than they received in new external financing, reflecting the cumulative financial outflow experienced during years of elevated international interest rates. The direction changed in 2025, when net long term debt transfers shifted from an outflow of approximately $118 billion in 2024 to an inflow of $45 billion. This improvement meant that developing economies collectively received more new long term financing than they paid on comparable obligations during the year, although the overall figures combine countries with different borrowing conditions and repayment requirements. The return of positive net financing coincided with increased activity in sovereign debt management. The World Bank identifies 14 developing countries that undertook sovereign bond buybacks and exchanges worth approximately $34.5 billion in 2025, reflecting efforts to restructure repayment schedules and reduce the concentration of debt maturities. These transactions allow governments to replace securities approaching repayment with new obligations that mature later, reducing immediate pressure on public finances and providing greater flexibility in managing cash flows. However, where newly issued bonds carry higher interest rates than the securities being repurchased, the government may reduce near term repayment pressure while increasing the cost of financing over subsequent years. The distinction matters for African governments because debt repayments are financed from public revenue, foreign currency reserves or additional borrowing. A country receiving substantial new loans can still experience limited fiscal improvement if most of the proceeds are required to refinance existing obligations. Similarly, an increase in international bond issuance does not necessarily indicate that an equivalent amount of new capital is being directed towards infrastructure, industrial development or public services. The economic benefits depend on the uses of the financing, the interest rates attached to the new obligations and the extent to which government revenue is already committed to servicing outstanding debt. Currency movements also influenced the increase in reported external debt during 2025. The World Bank estimates that valuation effects associated with exchange rate movements accounted for approximately 28.2% of the roughly $303 billion increase in public and publicly guaranteed external debt. The depreciation of the US dollar increased the reported dollar value of obligations denominated in other currencies, contributing to higher recorded debt stocks even where borrowers had continued making principal repayments. This means that part of the reported increase in external debt reflected currency valuation rather than new financing received by developing economies. For African governments that collect most of their tax revenue in domestic currencies while borrowing externally in dollars, euros or other currencies, exchange rate developments can affect the domestic cost of repayment. Currency depreciation against the currency of a loan increases the amount of local revenue needed to service that obligation, while changes in international exchange rates also influence the reported value of debt stocks. These effects reinforce the importance of debt composition, particularly for countries whose foreign exchange earnings depend heavily on a limited range of commodity exports, tourism receipts or other external revenue sources. Tanzania's $1.2 Billion SGR Financing Shows How Development Bank Guarantees Can Mobilise Capital Tanzania's latest railway financing agreement provides a contemporary example of how African governments and development finance institutions are structuring infrastructure investment in an environment where commercial capital remains expensive. On 4 November 2026, one day before the World Bank released its International Debt Report, Tanzania and the African Development Bank announced the signing of a $1.2 billion commercial financing facility for the Tabora to Kigoma section of the country's Standard Gauge Railway. The agreement is supported by an $800 million partial credit guarantee arranged by the African Development Bank, its largest such guarantee to date, and brings together nine international and African commercial banks to finance the 411 kilometre electrified railway. The arrangement illustrates how multilateral financial institutions can support commercial borrowing by providing credit protection to lenders. The African Development Bank, acting as Initial Mandated Lead Arranger, structured a facility comprising $720 million in guaranteed lending and $480 million extended against Tanzania's sovereign credit risk. Deutsche Bank and Société Générale serve as co arrangers, alongside HSBC, Commerzbank, Nedbank, Stanbic Bank Tanzania, First Abu Dhabi Bank, FirstBank UK and Bank of Africa United Kingdom. International credit insurers also participate in the transaction, with insurance broker Texel arranging approximately $405.5 million in protection covering part of AfDB's guarantee exposure. The $800 million partial credit guarantee provides protection against specified repayment obligations and helps participating banks commit capital to a large infrastructure project. It is a credit enhancement arrangement supporting the $1.2 billion commercial facility rather than an additional cash loan. By combining commercial lending, multilateral credit protection and private insurance, the transaction distributes financial exposure across several institutions and creates a structure through which Tanzania can mobilise substantial capital for railway construction. The financing is intended to support Tanzania's Central Corridor, extending the country's modern railway network towards Lake Tanganyika and improving transport connections between the Port of Dar es Salaam, western Tanzania and regional markets in Burundi and eastern Democratic Republic of Congo. The railway is expected to expand freight capacity, improve the movement of agricultural and mineral commodities and support trade through the wider regional transport network. Its development forms part of Tanzania's effort to strengthen its role as a logistics gateway between the Indian Ocean and inland markets in East and Central Africa. The relevance of the transaction to the World Bank's debt findings lies in the financing mechanism. Commercial lenders participate in infrastructure development while a multilateral institution provides credit protection that improves the financing structure. Such arrangements can expand access to capital for large projects and reduce the portion of credit risk borne directly by participating banks. The actual financial terms of individual transactions determine the borrowing costs faced by governments, but guarantees provide an additional instrument through which African economies can finance infrastructure without relying exclusively on conventional sovereign bonds or direct development bank loans. For governments pursuing railway, port, energy and industrial infrastructure, the use of credit guarantees also demonstrates how development finance institutions can mobilise commercial capital beyond their direct lending operations. The African Development Bank's participation in Tanzania's SGR programme illustrates this approach, combining its infrastructure financing experience with commercial banking capacity and international insurance markets. In an environment where the World Bank reports average new bond rates of 9.4% for IDA eligible countries, the ability to structure different financing arrangements becomes increasingly relevant to the cost and availability of development capital. Rising Debt Service Costs Are Reducing Fiscal Space for Development The World Bank's findings show that the consequences of expensive borrowing extend beyond debt statistics and financing markets. Governments must allocate revenue to interest and principal payments before those resources can be directed towards other expenditure commitments, creating competition between debt servicing and investments in infrastructure, healthcare, education, agricultural development and employment programmes. This pressure is particularly substantial in economies where tax revenue represents a relatively small share of GDP and governments must simultaneously finance essential services, maintain existing infrastructure and respond to external economic shocks. The relationship between debt servicing and public investment is especially consequential for African economies pursuing industrial development. Electricity generation and transmission projects require substantial upfront capital before reliable power becomes available to manufacturers. Railway and port investments involve large construction costs before improvements in freight capacity and transport efficiency can support trade. Agricultural production depends on irrigation, storage, research and transport infrastructure, while industrial expansion requires investment in productive equipment, skills and supporting services. When a growing portion of government revenue is committed to servicing existing debt, fewer resources remain available to finance these investments through public budgets. The World Bank also identifies a relationship between heavier debt burdens and the ability of developing countries to respond to economic shocks that affect food affordability. Countries with substantial debt servicing obligations have less fiscal flexibility when confronted with rising food prices, climate related disruptions, lower export revenues or changes in international financing conditions. For economies where large portions of household expenditure are devoted to food, constraints on public finances can reduce the resources available for agricultural support, food security interventions and other measures intended to limit the effects of external shocks on household living standards. These conditions place greater emphasis on the economic productivity of investments financed through public borrowing. Infrastructure that reduces transport costs, improves electricity supply, expands productive capacity or strengthens export competitiveness can contribute to economic growth and future government revenue. The financial contribution depends on project selection, implementation costs, operating efficiency and the extent to which businesses can use the resulting infrastructure to increase production and trade. Investments that expand the economy's capacity to generate income and foreign exchange earnings can support the fiscal resources required to service debt, while projects with limited economic returns place additional demands on public finances. The World Bank also calls for greater transparency in sovereign financing arrangements as governments borrow through an increasingly wide range of creditors and instruments. Commercial loans, sovereign bonds, government guarantees, public enterprise obligations and other financing structures can create different forms of fiscal exposure, making comprehensive reporting necessary for an accurate assessment of debt commitments. Improved disclosure allows governments, creditors and investors to understand repayment obligations, assess fiscal conditions and determine how financing arrangements affect future public expenditure. Developing countries entered 2026 with a record $9.4 trillion in external debt after paying $1.4 trillion in principal and interest during the previous year. International commercial lending has recovered, and governments have regained access to bond markets, but the World Bank's latest data show that financing remains expensive for many of the poorest economies. Across Africa, the consequences are visible in Kenya's interest burden, Zambia's restructuring process, Ethiopia's financing reforms, Angola's dependence on petroleum earnings and the Republic of Congo's elevated commercial borrowing costs. Tanzania's latest SGR financing demonstrates one approach to attracting commercial capital through multilateral guarantees and international banking participation. Other governments are pursuing debt restructuring, changes in borrowing composition and fiscal reforms to improve their financial positions. Together, these developments illustrate the growing importance of financing terms and debt management in determining how much capital African economies can direct towards infrastructure, industrial production and long term economic development. FAQ How much external debt did developing countries owe in 2025? According to the World Bank's International Debt Report 2026, developing countries owed a record $9.4 trillion in external debt at the end of 2025, representing a 5.5% increase from 2024. How much did developing countries pay in debt servicing during 2025? Developing countries paid approximately $1.4 trillion in principal and interest on external debt in 2025, marking the fifth consecutive annual increase in debt servicing payments. What borrowing rates are the poorest developing countries paying? Countries eligible for financing from the World Bank's International Development Association paid an average interest rate of 8.2% on new private creditor commitments in 2025, the highest since 1989. Their newly issued international bonds carried average rates of 9.4%. Does the $9.4 trillion figure represent Africa's external debt? No. The $9.4 trillion figure covers developing economies worldwide. African countries account for part of the total, alongside developing economies in Asia, Latin America, Europe and other regions. Why are developing countries issuing new bonds to repay existing debt? Governments use refinancing and bond buybacks to manage upcoming maturities, extend repayment schedules and reduce immediate financing pressures. New borrowing can replace existing obligations while changing the timing and cost of future repayments. How has external debt affected African infrastructure financing? Elevated interest rates increase the cost of borrowing for infrastructure projects and raise the amount governments must allocate to debt servicing. Development finance institutions, credit guarantees and other financing arrangements can help governments mobilise capital for transport, energy and industrial investments. What is the relationship between Tanzania's SGR financing and the World Bank's debt findings? Tanzania's $1.2 billion Tabora to Kigoma SGR financing agreement illustrates how multilateral credit guarantees can support commercial infrastructure lending. The African Development Bank arranged an $800 million partial credit guarantee to support financing from nine commercial banks. What is the difference between external debt and total public debt? External debt refers to obligations owed to creditors outside a country's economy and can include government and private sector borrowing. Total public debt covers government borrowing from both domestic and foreign creditors. The two indicators measure different financial obligations and should not be treated as interchangeable.