World Bank Warns About Rising Debt in Developing Countries in 2026

Government debt has become one of the most important financial challenges facing developing countries. In 2026, the World Bank is highlighting the increasing pressure that international borrowing places on national budgets, public services, and long-term economic development.

According to the World Bank’s International Debt Report 2026, external debt held by developing countries increased to a record $9.4 trillion in 2025. This represented a 5.5 percent increase compared with the previous year.

The report also explains that private creditors have returned to international markets, allowing more governments to issue bonds and obtain financing. However, access to international money does not necessarily mean borrowing has become affordable.

Some of the poorest countries are paying particularly high interest rates. Countries eligible for financing through the International Development Association paid an average of 8.2 percent on new private-creditor commitments in 2025. Their average interest rate on new bonds reached 9.4 percent.

These high borrowing costs create serious problems. Governments must use more public revenue to repay loans instead of investing in important development projects.

For example, a government dealing with expensive debt repayments may have fewer resources available for hospitals, schools, roads, electricity, and clean water. This situation can slow economic development and make poverty reduction more difficult.

The World Bank report also states that low- and middle-income countries paid approximately $1.4 trillion in principal and interest during 2025. This was the fifth consecutive annual increase in debt-service payments.

Another problem is currency depreciation. Many developing countries borrow in foreign currencies, particularly US dollars. When their national currencies lose value, repaying international loans becomes more expensive in domestic currency.

To address these problems, financial experts recommend stronger debt management, improved government transparency, responsible borrowing, and better public financial planning.

Governments should carefully evaluate whether new loans will generate economic benefits. Borrowing to finance productive infrastructure, electricity projects, and industrial development may support future growth. However, borrowing without a clear repayment strategy can create long-term financial difficulties.

The World Bank also encourages countries to improve tax collection and diversify their economies. Stronger domestic revenue can reduce dependence on expensive international financing.

International cooperation remains important because some countries cannot solve their debt problems independently. Financial institutions, private creditors, and governments may need to work together to develop sustainable repayment arrangements.

The rising debt situation demonstrates that economic growth cannot depend entirely on borrowing. Developing countries need strong institutions, productive investment, and responsible financial policies.

In 2026, managing debt effectively is becoming essential for protecting economic stability and ensuring that future generations are not burdened by unsustainable financial obligations.