World Bank Warns Developing Countries as External Debt Hits Record $9.4 Trillion

World Bank Warns Developing Countries as External Debt Hits Record $9.4 Trillion

Developing countries’ external debt rose 5.5 per cent to a record $9.4 trillion in 2025, according to the World Bank’s International Debt Report 2026. The increase was the fastest since 2021 and around four times the 2022–24 average. The figure is attracting attention because access to overseas financing has improved, but borrowing costs remain high and repayments are taking up public resources.

Debt grew fastest among countries eligible for financing from the International Development Association (IDA), the World Bank’s arm that provides grants and low-cost loans to poorer economies. Their external debt rose 8.1 per cent to $1.3 trillion in 2025. Many are in Sub-Saharan Africa and South Asia. The report highlights the vulnerability of poorer borrowers rather than identifying one country as the single most affected.

Why countries borrow

Governments borrow externally when domestic revenue and local financing are insufficient to meet development needs. Loans can fund roads, railways, ports, electricity networks, water systems, hospitals, schools and digital infrastructure. They can also support public health programmes, expand education, strengthen agriculture and help businesses grow.

When projects are properly selected, reliable electricity can lower business costs, better roads can connect farmers to markets, and hospitals and schools can improve essential services and workforce skills.

Borrowing can increase productivity and eventually expand the tax base. But a poorly chosen, delayed or badly managed project can leave a country with debt without delivering benefits that justify its cost.

Borrowing costs and repayments

The World Bank report shows poorer countries face expensive financing. IDA-eligible countries paid an average 8.2 per cent on new private-credit commitments in 2025, the highest since 1989. New bonds carried an average 9.4 per cent rate. By comparison, countries eligible for lending from the Bank’s International Bank for Reconstruction and Development paid an average 5.5 per cent on new bonds.

Official development institutions may offer longer repayment periods and lower rates. Private loans and bonds can provide funding but often cost more. Refinancing maturing debt can spread payments without reducing the total owed, sometimes at higher rates.

Low- and middle-income countries paid $1.4 trillion in principal and interest in 2025, a 1.9 per cent increase and fifth consecutive annual rise. Payments to bondholders reached $363 billion. Between 2022 and 2025, these countries paid $436 billion more in debt service than they received in new financing.

Debt service includes principal and interest. Rising repayments leave governments less room for public services, infrastructure maintenance and new projects. The pressure grows when exports fall, currencies weaken, rates rise or emergencies increase spending. The World Bank said a weaker US dollar accounted for more than a quarter of the $303 billion increase in public and publicly guaranteed debt, by raising the dollar value of obligations in other currencies.

What the figures mean for Nigeria

World Bank data show Nigeria’s total external debt stock reached about $145 billion in 2025, up from approximately $136 billion in 2024. This includes public, private and short-term obligations; it is not government debt alone. Public and publicly guaranteed external debt stood at about $56.9 billion. That distinction matters when assessing the government’s direct repayment burden.

Nigeria’s external debt service equalled 19.3 per cent of exports in 2025, compared with 17.6 per cent in 2024. This measures repayments against export earnings, an important source of foreign exchange. New official-creditor commitments carried an average 1.9 per cent interest rate, while new private-creditor commitments averaged 9.6 per cent.

Borrowing can help Nigeria finance electricity, transport, healthcare, education, agriculture and industry. Its value depends on whether funds reach projects that deliver lasting benefits. Infrastructure loans need realistic budgets, transparent procurement, competent supervision and maintenance plans.

Managing borrowed money effectively

Governments need clear priorities before borrowing, public records of loan amounts and terms, and regular spending reports. Independent audits and oversight can expose waste, delays and cost overruns.

The workforce delivering projects matters too. Engineers, health professionals, teachers, technicians, administrators and project managers need proper training, equipment, safe working conditions and fair compensation. Expecting quality results while neglecting the people responsible for delivering public services can undermine the original investment. Supporting skilled workers is part of ensuring that projects operate effectively and continue serving communities.

Governments should assess whether projects can generate revenue, raise productivity, reduce costs or provide social benefits that justify financing. Health and education may not produce direct cash returns, but their public value should be measured. Citizens should know how much is owed, to whom, at what rate and when repayment is due.

The findings do not mean developing countries should stop borrowing. They underline the risks of expensive loans that fail to produce lasting gains. For Nigeria, the central questions are what the money finances, who manages it, how workers are supported and whether the benefits strengthen the economy enough to meet future obligations.