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Developing countries are facing a growing financial challenge as their external debt climbs to an unprecedented $9.4 trillion, according to the World Bank's International Debt Report 2026.
The report reveals that external debt among low- and middle-income countries increased by 5.5% in 2025, marking the fastest annual rise since 2021. While international financial markets have reopened and private lenders have returned, borrowing costs remain particularly high for the world's poorest economies.
In 2025, developing countries paid approximately $1.4 trillion in principal and interest payments. Some of the poorest nations faced average interest rates of 8.2% on new private borrowing, the highest level since 1989.
We examine what is driving the growing debt burden, why governments are spending increasingly large amounts on repayments, and how rising financial obligations could affect investment in healthcare, education, infrastructure and economic development.
With borrowing continuing into 2026, the question remains: how can developing economies finance their futures without becoming overwhelmed by the cost of debt?
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