Developing countries are facing a growing financing challenge as the cost of servicing external debt rises faster than the benefits of returning to international capital markets, threatening the resources available for infrastructure, industrial investment and essential public services.
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 about four times the average recorded between 2022 and 2024.
The trend raises concerns for Ghana and other economies that rely on external financing to fund development programmes, particularly as higher borrowing costs increase the pressure on government revenues and future budgets.
Although access to international finance has improved, the World Bank says the price of borrowing remains high, with private creditor lending and currency movements accounting for much of the increase in debt.
The pressure is more pronounced among the poorest economies. External debt in countries 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 some of the highest borrowing costs. 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 interest rate of 9.4%.
The cost difference between private and official financing has widened considerably. 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 growing dependence on private creditors is reflected in public sector bond issuance, which increased by nearly 35% to US$251 billion in 2025, the highest level in five years as international markets reopened to developing economies.
However, the return to bond markets has not necessarily translated into lower debt burdens. The report observed that several governments issued new bonds to buy back maturing obligations, extending repayment periods without significantly reducing their overall debt stocks.
Such refinancing can ease immediate repayment pressures, but governments may end up paying more when replacement bonds carry higher interest rates.
The cost of servicing existing debt is already absorbing substantial resources. Low and middle income countries paid US$1.4 trillion in principal and interest in 2025, an increase of 1.9% and the fifth consecutive annual rise.
Payments to bondholders reached US$363 billion, partly reflecting debt buybacks and prepayments financed through new bond issues.
Between 2022 and 2025, developing countries paid US$436 billion more in debt service than they received in new financing, illustrating how debt repayments have continued to drain resources from economies that need investment to expand production and improve living standards.
Although long term debt flows shifted from a net outflow of US$118 billion in 2024 to a net inflow of US$45 billion in 2025, the World Bank cautioned that the broader financing environment remained expensive.
Currency movements have added another layer of pressure. More than a quarter of the US$303 billion increase in public and publicly guaranteed debt was attributed to the weaker US dollar, which increased the dollar value of debt denominated in other currencies.
For some of the largest concessional borrowers, the currency effect exceeded the principal they repaid during the year, leaving their reported debt balances higher despite continued repayments.
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 stressed the need for responsible debt management to protect development opportunities for future generations.
Early 2026 data indicate that demand for international bond financing remains strong despite the high costs. More than 10 low and middle income countries had already exceeded their 2025 issuance levels, while others returned to international markets by mid August.
For Ghana, the global trend reinforces the importance of managing the cost, currency exposure and productive use of external borrowing. Financing that supports infrastructure, export capacity and domestic industry can strengthen the economy’s ability to generate revenue and meet future obligations.
However, when borrowing costs rise and debt service takes up a larger share of government resources, the pressure can limit funding for public investment and essential services.
The central challenge for developing economies is therefore not simply securing access to international capital, but ensuring that borrowed funds generate sufficient economic returns to justify the cost of financing.
