World Bank warns developing economies as external debt hits

Developing countries’ external debt stock surged 5.5 per cent to a record $9.4 trillion in 2025, driven by increased borrowing from private creditors and renewed access to international bond markets, raising concerns over mounting debt-service obligations and shrinking fiscal space for development spending.

The World Bank, in its International Debt Report 2026 released on Thursday, November 5, warned that rising borrowing costs and growing repayment obligations could force governments to divert scarce resources from critical investments in infrastructure, healthcare, education and other development priorities.

The increase represented the fastest annual growth in developing economies’ external debt since 2021 and was approximately four times the average expansion recorded between 2022 and 2024, underscoring the intensifying financing pressures confronting low- and middle-income countries.

The debt burden was even more pronounced among the world’s most vulnerable economies, with external debt in countries eligible for concessional financing from the World Bank’s International Development Association (IDA) rising 8.1 per cent to $1.3 trillion.

Private creditors accounted for a significant proportion of the increase, reflecting the return of several emerging and developing economies to international capital markets despite elevated interest rates and tighter financing conditions.

World Bank Group Chief Statistician and Director of Development Data, Haishan Fu, said the renewed access to private financing was welcome but warned that the rising cost of borrowing was undermining its development benefits.

“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,” she said.

The report showed that bond issuance by public entities increased by nearly 35 per cent to $251 billion in 2025, its highest level in five years.

However, the World Bank noted that some governments deployed proceeds from fresh bond issuances to repurchase maturing obligations, effectively extending repayment timelines without significantly reducing their overall debt stocks.

Such refinancing arrangements often came at higher interest rates, further increasing debt-servicing costs and exposing governments to additional fiscal pressures.

The momentum in international borrowing has also persisted into 2026, with preliminary data showing that more than 10 developing countries had exceeded their entire 2025 bond issuance by mid-August, while several others returned to international markets for fresh financing.

Nigeria’s borrowing trajectory reflects some of the pressures highlighted by the World Bank, with the country’s external debt stock continuing to rise amid increased reliance on multilateral financing, international capital markets and domestic securities to fund government expenditure.

Data from the Debt Management Office (DMO) showed that Nigeria’s external debt stock increased to $54.52 billion as of June 30, 2026, from $51.90 billion in March, representing an additional $2.62 billion within three months.

Compared with approximately $43.1 billion when President Bola Tinubu assumed office in May 2023, the country’s external debt has increased by about $11.4 billion in just over three years.

The increase reflects sustained borrowing from multilateral institutions, particularly the World Bank, alongside Eurobond issuances and syndicated financing arrangements.

Nigeria’s total public debt stock also climbed to N166.79 trillion as of June 2026, comprising N91.59 trillion in domestic debt and N75.19 trillion in external obligations.

The Federal Government is also pursuing additional external financing, including a proposed $1.25 billion World Bank loan to support reforms in access to finance, digital services, electricity, taxation and agriculture.

However, the growing debt stock has heightened concerns about the proportion of government revenue and foreign exchange earnings being committed to servicing existing obligations, particularly amid competing demands for infrastructure investment and social expenditure.

Nigeria spent $5.21 billion servicing external debt in 2025, compared with $4.66 billion in 2024, representing an increase of 11.9 per cent, according to Central Bank of Nigeria (CBN) data.

The payments accounted for 72.11 per cent of the country’s total international payments during the year, indicating that nearly three out of every four dollars paid externally went towards meeting foreign debt obligations.

The pressure has also extended to domestic borrowing, which continues to attract substantial interest payments amid elevated government securities yields.

The DMO reported that Nigeria spent N5.28 trillion servicing domestic debt in the first half of 2026, with N4.95 trillion channelled towards interest and rental payments.

The figures highlight the growing fiscal implications of Nigeria’s borrowing strategy, with debt servicing competing for resources required to finance capital projects and stimulate economic growth.

For developing economies, the World Bank’s warning underscores a growing contradiction in international financing: access to capital markets may be improving, but the cost of borrowing is increasingly limiting the capacity of governments to translate additional debt into sustainable economic development.

For Nigeria, the challenge will be to ensure that fresh borrowing generates sufficient economic returns, expands productive capacity and strengthens revenue generation to prevent debt accumulation from further constraining public finances.