World Bank: Borrowing Costs for Poorest Countries Hit Highest Since 1989
nashnova research
Emerging-economy external debt has climbed to a record $9.4 trillion, while the poorest countries now pay the highest borrowing rates since 1989 — they are borrowing more, paying more, and left with less for development.
How expensive has it become for poor countries to borrow?
Low-income countries paid an average 8.2% on new private loans last year; new bond coupons averaged 9.4%.
Stronger developing economies issued bonds at an average 5.5% — a gap of nearly four percentage points.
This means → for every dollar borrowed, the poorest nations shoulder roughly 1.7 times the interest burden of middle-income peers. The World Bank says the issue is no longer access to capital — it is whether the cost is survivable.
Who is issuing aggressively, and at what price?
The Democratic Republic of Congo completed its debut dollar-bond sale in April, raising $1.25 billion at coupons of 8.75% and 9.5% — among the highest sovereign coupons recorded in 2026, according to the World Bank.
Angola's issuance through mid-August already exceeded more than double its full-year 2025 total of $2 billion; Indonesia and the Philippines also surpassed their full 2025 volumes.
In plain terms = poor and middle-income nations are racing to borrow, but the poorer the country, the higher the coupon and the more aggressive the pace.
Where is the borrowed money going?
The World Bank notes that many governments are issuing new debt to buy back old bonds or smooth repayment schedules, not to meaningfully reduce total debt.
In plain terms = they are borrowing new to repay old — the debt pile does not shrink, the due date just moves further out.
The World Bank warns: "When governments already face large financing needs with limited room to maneuver, external shocks become harder to absorb."
Is the return of private capital a good sign or a hidden risk?
In low- and middle-income countries (excluding China), private financing is the main driver of external-debt growth — net debt inflows reached nearly $360 billion in 2025.
Haishan Fu (付海珊), the World Bank's chief statistician, said: "The return of private lending to low- and middle-income countries is welcome, but these nations are borrowing more, paying more, and in many cases left with less room for long-term development."
This reflects a core tension: capital returning is a confidence signal, yet high-interest borrowing is eroding these countries' future fiscal space.
What are "total return swaps," and why are they alarming?
Since 2024, Argentina, Colombia, Angola, Nigeria, and Senegal have sharply increased their use of total return swaps — a complex liability-management tool — with deal sizes ranging from roughly $1 billion to $9.3 billion.
In plain terms = these instruments let governments obtain foreign currency quickly, but at a cost: assets must be pledged as collateral, refinancing pressure builds at maturity, and deal terms are often undisclosed.
The World Bank warns the arrangements carry triple risks — collateral, refinancing, and transparency — and if market conditions deteriorate, hidden debt pressures could surface all at once.
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