Developing countries, including Nigeria, are experiencing their most severe debt strain in more than half a century, even as global financial conditions show tentative signs of easing. Total external debt across developing economies climbed to a record $8.9 trillion in 2024, according to the World Bank’s 2025 International Debt Report, underscoring the scale of a crisis that continues to reshape public finances, social spending, and investment prospects worldwide.

The report reveals that between 2022 and 2024, developing economies paid $741 billion more in principal and interest than they received in new financing. According to the World Bank, this represents the largest net outflow of resources from developing countries in over 50 years, a reversal that has intensified fiscal pressure at a time when governments are already grappling with inflation, currency volatility, and rising social needs.

Fragile relief amid persistent vulnerabilities

While global interest rates peaked in 2024 and international bond markets partially reopened to some borrowers, the World Bank cautioned that the apparent relief remains fragile. In its December 2025 report, the institution warned that recent improvements are insufficient to undo years of rapid debt accumulation, particularly among low-income and lower-middle-income countries.

To avoid outright defaults, developing countries restructured approximately $90 billion in external debt in 2024, marking the largest annual restructuring exercise since 2010. Meanwhile, private bondholders provided about $80 billion more in new financing than they received in repayments. This influx helped several countries regain access to international capital markets, enabling multi-billion-dollar bond issuances after years of exclusion.

However, the cost of that access has risen sharply. According to the report, average interest rates on new borrowing hovered close to 10 percent, roughly double pre-2020 levels. This shift significantly raises future debt-servicing obligations and reduces fiscal flexibility, especially for countries with narrow revenue bases.

World Bank Group Chief Economist and Senior Vice President for Development Economics, Indermit Gill, warned policymakers against interpreting the market reopening as a return to normal.

“Global financial conditions might be improving, but developing countries should not deceive themselves; they are not out of danger,” Gill said. “Their debt build-up is continuing, sometimes in new and pernicious ways. Policymakers everywhere should use the breathing room that exists today to put their fiscal houses in order, instead of rushing back into external debt markets.”

Nigeria’s position within the broader crisis

Nigeria, classified as an International Development Association eligible country, remains one of the largest recipients of concessional World Bank financing. In 2024, the Bank disbursed $18.3 billion more in new financing than it received in repayments from IDA-eligible countries, alongside a record $7.5 billion in grants. According to the World Bank, this support has become increasingly critical as other funding sources retreat.

Bilateral creditors, mainly foreign governments, sharply reduced their lending. The report shows that bilateral lenders collected $8.8 billion more in repayments than they extended in new financing, following debt-relief initiatives that in some cases reduced long-term debt stocks by as much as 70 percent.

Despite concessional inflows, Nigeria’s debt pressures remain pronounced. Data from the Debt Management Office indicate that the country’s external debt stood at approximately $47 billion as of June 2025, up from $45.97 billion in the first quarter of the year. With a population exceeding 200 million, debt servicing continues to constrain fiscal space, limiting the government’s ability to expand spending on infrastructure, education, healthcare, and social protection.

Analysts note that Nigeria’s challenge is less about absolute debt levels than about revenue weakness. According to public finance experts, low tax-to-GDP ratios leave the country particularly exposed to interest rate shocks, making even moderate increases in borrowing costs difficult to absorb.

Social costs and human consequences

Beyond balance sheets, the World Bank highlighted the severe social implications of rising debt burdens. Developing countries paid a record $415 billion in interest alone in 2024, resources that could otherwise have been directed toward schools, hospitals, and basic infrastructure.

In the most heavily indebted economies, where external debt exceeds 200 percent of export revenues, an average of 56 percent of the population cannot afford the minimum daily diet required for long-term health. Among IDA-eligible countries, including Nigeria, nearly two-thirds of citizens face the same challenge, according to the report.

This link between debt and food insecurity offers a stark reminder that debt sustainability is not merely a financial concept. Development economists argue that prolonged debt stress can entrench poverty by forcing governments to prioritize repayments over social investment, creating long-term consequences for productivity and human capital.

Shift toward domestic borrowing raises new risks

The report also identified a growing shift toward domestic borrowing as governments seek alternatives to costly foreign debt. Out of 86 countries with available data, more than half recorded faster growth in domestic government debt than external debt in 2024.

While this trend reflects progress in building local capital markets, it carries significant risks. According to the World Bank, heavy domestic borrowing can crowd out private-sector lending as banks increasingly favor government securities over business loans. Shorter maturities on domestic debt also raise refinancing costs and heighten rollover risks during periods of financial stress.

World Bank Group Chief Statistician and Director of the Development Data Group, Haishan Fu, described the trend as a double-edged sword.

“The rising tendency of many developing countries to tap domestic sources for their financing needs reflects an important policy accomplishment,” Fu said. “It shows their local capital markets are evolving. But heavy domestic borrowing can spur banks to load up on government bonds when they should be lending to the private sector. Governments need to be careful not to overdo it.”

Why the moment matters now

The current juncture is critical because many developing countries are approaching a narrow window of opportunity. With interest rates stabilizing and market access partially restored, governments have a chance to implement fiscal reforms, improve revenue collection, and strengthen debt transparency before the next global shock.

For Nigeria, this may involve accelerating tax reforms, broadening the revenue base, and ensuring borrowed funds are tied to growth-enhancing projects. Economists warn that without such measures, the combination of high interest costs, population growth, and social pressures could deepen fiscal stress over the next decade.

Investors and policymakers will be closely monitoring how developing countries balance short-term financing needs with long-term sustainability. Key signals include progress on debt restructuring frameworks, shifts in domestic borrowing patterns, and the extent to which concessional lenders continue to fill financing gaps left by bilateral creditors.

As the World Bank’s findings make clear, the debt crisis facing developing economies is not over. Instead, it has entered a more complex phase, one where the consequences of today’s policy choices will shape economic and social outcomes for years to come.