Private lenders have come back to many of the world’s poorest countries, reopening bond markets that stayed largely shut for years. The return helped push external debt of developing economies to a record $9.4 trillion in 2025. It has also come at a high price that is raising questions about whether the borrowing is sustainable.
The World Bank’s International Debt Report 2026 shows external debt of low- and middle-income countries rose 5.5% last year, the fastest pace since 2021 and about four times the average rate between 2022 and 2024.
Private financing accounted for much of the increase. Bond issuance by public entities jumped nearly 35% to $251 billion, the highest level in five years, as markets reopened to many borrowers.
Access has improved. The cost of that access has not. Countries eligible for concessional financing from the World Bank’s International Development Association paid an average of 8.2% on new private loans in 2025, the highest rate since 1989, and 9.4% on new bonds.
The gap between what these countries pay private creditors and what they pay official lenders has widened to 5.5 percentage points from 3.4 points a decade earlier.
Recent deals show how expensive the money remains. Laos sold a $300 million bond due in 2030 at a 11.25% coupon in late 2025 and later placed a larger $500 million deal at 9.625%.
The Republic of Congo returned to international markets after a long absence with a private placement that yielded around 13.7% on a 9.875% coupon issued at a deep discount. The Democratic Republic of Congo made its debut in April 2026, raising $1.25 billion across two tranches at yields of 8.75% and 9.50% still a clear premium over its existing, mostly concessional debt.
Kenya has issued in the 8–9% range. Across Sub-Saharan Africa, average coupons have kept rising into 2026 while average maturities have shortened.
“The return of private lending to low- and middle-income countries is welcome, but these countries are borrowing more, paying more, and in many cases leaving less for long-term development,” said Haishan Fu, World Bank Group Chief Statistician and Director of Development Data.
The pressure is already showing up in the numbers. Low- and middle-income countries paid $1.4 trillion in principal and interest in 2025, the fifth consecutive annual increase.
Over the 2022–2025 period they paid roughly $436 billion more in debt service than they received in new financing. A large share of the recent private borrowing has gone toward liability management, refinancing shorter-term or higher-cost debt rather than pure new investment. That can ease near-term maturities, but it frequently locks in a higher average cost of debt.
Stronger middle-income borrowers have faced better terms. Countries eligible only for non-concessional World Bank financing paid an average of about 5.5% on new bonds in 2025. The sharpest increases in borrowing costs have been concentrated among the most vulnerable issuers.
Early 2026 data show the trend continuing. By mid-August, more than 10 countries had already exceeded their full-year 2025 bond issuance volumes despite elevated yields. For many frontier governments, the binding constraint has shifted from market access to market affordability.
Whether the new private capital can be serviced without crowding out spending on infrastructure, education, and health will determine if the reopening of markets lasts or simply provides temporary relief at a higher long-term cost.
