External debt owed by developing countries surged to a record $9.4 trillion in 2025, rising 5.5% in the fastest annual increase in four years, according to World Bank data released Wednesday. The poorest nations now face average interest rates of 8.2% on new borrowing — the highest since the late 1980s — crowding out investment in long-term development.
Key Takeaways
- Developing country external debt hit record $9.4tn in 2025, up 5.5% — fastest rise in four years
- Poorest nations face 8.2% average borrowing costs, highest since late 1980s; Laos 11.5%, Congo 13.88%, Kenya 9.2%
- World Bank links high debt burdens to reduced food affordability during global shocks
- UK to champion 'new drive on debt' at 2026 G20; Gordon Brown appointed to examine regime changes
- Private creditors now dominate over official lenders, complicating restructuring vs. 2005 Gleneagles model
Executive Intelligence Brief
Record Debt Accumulation Driven by Private Lending
The World Bank's annual International Debt Report shows the 5.5% increase in developing country debt last year was propelled by a rapid rise in private sector lending. While access to international finance has improved, the cost has not. "Low- and middle-income countries are borrowing more, paying more, and, in many cases, leaving less for long-term development," said Haishan Fu, the Bank's chief statistician.
The report highlights extreme borrowing costs for specific nations: Laos at 11.5%, Republic of Congo at 13.88%, and Kenya at 9.2%. Preliminary data for 2026 suggests lending continues at a rapid pace but at continued high interest rates as global financing costs remain elevated.
Debt Service Crowds Out Development and Food Security
The Bank's analysis draws a direct line between high debt burdens and reduced capacity to absorb global shocks. Examining food and nutrition security, the report found that heavily indebted countries experienced sharper declines in the affordability of a healthy diet during periods of global stress. "Food and nutrition security provides a concrete example of these interactions," the report states, illustrating how debt burdens may be closely associated with a decline in dietary affordability.
Creditor Landscape Complicates Restructuring
The current landscape differs fundamentally from the 2005 Gleneagles summit, when G8 governments wrote off billions in bilateral debt. Today's creditors are predominantly private-sector bondholders, not governments, making coordinated restructuring far more complex. This structural shift underpins the difficulty of replicating past debt relief successes.
UK G20 Presidency to Launch New Debt Initiative
Prime Minister Andy Burnham has linked a "new drive on debt" to confronting the legacy of slavery, appointing former Prime Minister Gordon Brown to examine feasibility of changes to the global debt regime ahead of the UK's 2026 G20 presidency. Foreign Secretary Ed Miliband outlined a "new deal" at the IMF annual meetings in Bangkok last month, likely including proposals to mobilise multilateral development bank balance sheets to buy back outstanding debt, extend repayment periods, and reduce interest rates.
African Union and Global South Demand Framework Reform
Pressure for systemic change has been building, with African Union heads of state and successive G20 chairs — Brazil and South Africa — demanding reforms to the international debt architecture. The UK initiative will need to navigate divergent creditor interests and the absence of a binding framework for private sector participation.
