Developing countries are returning to international debt markets for financing, but the rising cost of borrowing is threatening to weaken the resources available for infrastructure, healthcare, education and other long-term development priorities.
The World Bank Group’s International Debt Report 2026 shows that external debt across developing economies increased by 5.5% to a record US$9.4 trillion in 2025, marking the fastest growth since 2021 and approximately four times the average recorded between 2022 and 2024.
The development presents a difficult financing environment for countries such as Ghana, where the ability to mobilise affordable capital remains important for infrastructure expansion, industrial development and the delivery of essential public services.
Although international capital markets have reopened to several developing economies, the World Bank warned that access to finance has improved without a corresponding reduction in borrowing costs.
The pressure is particularly severe among the poorest countries. External debt in economies eligible for concessional financing from the World Bank’s International Development Association (IDA) rose by 8.1% to US$1.3 trillion in 2025.
These countries also faced significantly higher interest rates on new private borrowing. IDA eligible economies paid an average of 8.2% on new commitments from private creditors, the highest rate since 1989, while new bond financing attracted an average rate of 9.4%.
The cost difference between private and official financing has also widened. The gap between the rates IDA eligible countries paid to private and official creditors increased from 3.4 percentage points in 2016 to 5.5 percentage points in 2025.
By comparison, countries eligible for financing from the World Bank’s International Bank for Reconstruction and Development (IBRD) paid an average of 5.5% on new bonds, down from 5.8% in 2024.
The rising cost of private financing is becoming a concern as governments increasingly depend on international bond markets to meet their funding requirements.
Bond issuance by public entities increased by nearly 35% to US$251 billion in 2025, the highest level in five years, as investors resumed lending to several developing economies.
However, the World Bank noted that some governments used proceeds from new bond issues to repay or buy back maturing debt, extending repayment periods without substantially reducing their overall debt stocks.
Such transactions can ease immediate repayment pressures but may expose governments to higher interest costs, particularly when replacement financing is more expensive than the debt being retired.
The consequences are reflected in the amount developing countries are spending to service existing obligations.
Low and middle income countries paid US$1.4 trillion in principal and interest in 2025, representing a 1.9% increase and the fifth consecutive annual rise. Payments to bondholders alone reached US$363 billion, partly due to debt buybacks and prepayments financed through new bond issuance.
Between 2022 and 2025, developing countries paid US$436 billion more in debt service than they received in new financing, highlighting the extent to which repayments have absorbed resources that could otherwise support economic development.
Although the direction of long term debt flows improved in 2025, moving from a net outflow of US$118 billion in 2024 to a net inflow of US$45 billion, the World Bank cautioned that the broader financing environment remained expensive.
Currency movements also contributed to the increase in reported debt. More than a quarter of the US$303 billion increase in public and publicly guaranteed debt was attributed to the weaker US dollar, which raised the dollar value of obligations denominated in other currencies.
For some of the largest concessional borrowers, the currency effect exceeded the principal repayments made during the year, leaving their reported debt balances higher despite continued debt servicing.
Haishan Fu, World Bank Group Chief Statistician and Director of Development Data, said the return of private lending to low and middle income countries was welcome, but warned that governments were borrowing more and paying more, leaving fewer resources for long term development.
She emphasised the need for responsible debt management to protect the development prospects of future generations.
Early 2026 data suggest that demand for international bond financing remains strong despite the high costs, with more than 10 low and middle income countries already exceeding their 2025 issuance levels, while others returned to the market by mid August.
For Ghana and other developing economies, the figures underline the importance of looking beyond the availability of international financing to its actual cost and contribution to economic growth.
Borrowing that supports productive infrastructure, expands export capacity and strengthens domestic industries can generate economic returns. However, when debt servicing absorbs an increasing share of public resources, governments face tighter choices over investment and essential services.
The challenge for policymakers is therefore not simply to secure access to international capital, but to ensure that the financing obtained delivers sufficient economic value to justify its cost.
