Global debt: developing nations' external debt hits record $9.4 trillion

The external debt of low- and middle-income countries rose 5.5% in 2025 to a record $9.4 trillion, the World Bank said in its International Debt Report 2026, released on Thursday, 5 November 2026. External debt is money a country's government, companies and banks owe to lenders abroad. The bank said the pace of increase was the fastest since 2021 and about four times the average of 2022 to 2024. Debt rose fastest among the poorest countries, those eligible for the bank's low-cost International Development Association (IDA) loans, where it grew 8.1% to $1.3 trillion. The bank's message is that these countries can borrow again from markets, but at a high price.

When a country owes money abroad, it has to pay interest and repay principal in foreign currency, usually US dollars. Each dollar spent servicing old debt is a dollar not spent on schools, clinics, roads or power. The World Bank's report is the standard annual count of this burden for more than a hundred developing economies, and it shapes how governments, the International Monetary Fund and lenders talk about debt relief.

The 2026 report describes a shift. In 2022 to 2024, high global interest rates shut many poorer countries out of bond markets, so new borrowing slowed. In 2025, markets reopened and private lenders came back, which is why debt rose faster. That brings money in, but on harder terms than the cheap, long-term loans of development banks. The poorest countries, the IDA group, saw the steepest rise in debt, which the bank flags as the main risk: their economies are smallest and least able to absorb a shock such as a weaker currency or a fall in export prices.

There is a small piece of good news for middle-income borrowers. Countries that borrow on the World Bank's regular, non-concessional terms paid slightly less on new bonds, 5.5% against 5.8%. But the bank's overall verdict is that better access to finance has not solved the problem of its cost.

India is not among the countries the report worries about most. The RBI's latest figures show external debt of $778.2 billion at end-June 2026, against $762.8 billion at end-March 2026, with the ratio to GDP at 20.8%. US dollar debt was 54.8% of the total. That is a moderate level for an economy of India's size. The global picture still matters to Indian businesses and households: when many developing countries compete for the same dollars, borrowing costs for Indian companies abroad can rise, and debt trouble in neighbours such as Sri Lanka, Pakistan or Bangladesh can hurt Indian exporters and lenders in the region.

Peepals calculation: A 5.5% rise to $9.4 trillion means developing countries' external debt was about $8.9 trillion at the end of 2024 (9.4 ÷ 1.055 ≈ 8.91), an increase of about $0.5 trillion in one year. The IDA countries' $1.3 trillion is about 14% of the total (1.3 ÷ 9.4 ≈ 0.138). India's external debt rose $15.4 billion between end-March and end-June 2026 (778.2 − 762.8), about 2.0% in a quarter. Our calculation from the reported figures.

Short-term: Governments of the poorest borrowing countries face higher interest bills, leaving less room in their budgets; lenders and the IMF will use the report in debt-relief talks.

Long-term: If borrowing keeps growing faster than these economies, more of them may struggle to repay, which can slow growth across developing regions, including India's neighbourhood.

Who is affected: Governments and citizens of low- and middle-income countries, private bondholders, development banks, and Indian exporters and lenders with business in debt-stressed countries.

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