The external debt of developing countries climbed to an all-time high of $9.4 trillion in 2025, according to the World Bank's annual International Debt Report, as The Guardian reports. The poorest nations are now paying the steepest interest rates on new borrowing since the late 1980s, a trend the Bank says is crowding out spending on long-term development.
The 5.5% year-on-year increase was the fastest in four years, the report found, and was largely propelled by a surge in lending from the private sector. The figures come as the UK government prepares to push a fresh debt-relief initiative during its G20 presidency next year.
Why it matters
The World Bank's central warning is that the cost of servicing external debt is now diverting money that governments would otherwise invest in their own futures. Haishan Fu, the Bank's chief statistician, put the trade-off plainly, according to The Guardian: access to international finance has improved, but its price has not. Low- and middle-income countries, she said, are borrowing more, paying more, and in many cases retaining less for long-term development.
The report also drew a direct link between heavy debt and household welfare. It found that global shocks hit food availability harder in countries with large debt burdens, describing food and nutrition security as a concrete illustration of how indebtedness is associated with a decline in the affordability of a healthy diet during periods of global stress.
Borrowing costs at levels not seen since the 1980s
For the poorest countries — those eligible for concessional lending from the World Bank — new borrowing carried an average interest rate of 8.2%, the highest since the late 1980s, according to the report. The Bank singled out recent deals to illustrate the scale of the problem: Laos borrowed at 11.5%, the Republic of Congo at 13.88%, and Kenya at 9.2%.
Preliminary figures for 2026 suggest lending has continued at a brisk pace, though at persistently high rates as global financing costs have risen, the report said.
The Guardian notes that the UK is preparing to champion a "new drive on debt" when it takes the G20 chair next year, a push Prime Minister Andy Burnham has connected to confronting the legacy of slavery. Foreign Secretary Ed Miliband outlined plans last month at the IMF annual meetings in Bangkok for a "new deal" for heavily indebted countries. That proposal is expected to include measures to mobilise the balance sheets of the World Bank and other multilateral development banks to buy back outstanding debt, with the aim of stretching out repayment periods and lowering interest rates.
A harder problem than Gleneagles
The current effort faces a more complicated landscape than the 2005 Gleneagles summit, when G8 countries agreed to cancel billions of pounds of debt. Today's creditors are predominantly private-sector bondholders rather than governments, which makes coordinated relief harder to arrange.
Pressure for reform has been building. African Union heads of state have called for changes to the international debt framework in recent years, and the issue was taken up under the G20 chairs of Brazil and South Africa, The Guardian reports.
What to watch: whether the UK's G20 presidency can translate the proposed debt buy-back mechanism into commitments from multilateral lenders and private creditors — and whether borrowing costs for the poorest countries begin to ease in the 2026 data.
