Developing countries, including Nigeria, are facing a historic debt squeeze, with total external liabilities reaching $8.9tn in 2024, according to the World Bank’s latest 2025 International Debt Report.
Between 2022 and 2024, these nations paid $741bn more in principal and interest than they received in new financing, the largest shortfall in at least 50 years, underscoring mounting pressure on public finances and raising concerns for global lenders and investors.
Despite some relief in 2024 as global interest rates peaked and bond markets reopened, the situation remains fragile, the lender said in the report released in December.
Nations avoided defaults by restructuring $90bn in external debt, the largest annual restructuring since 2010. Private bondholders provided $80bn more in new financing than they received in repayments, enabling several countries to complete multi-billion-dollar issuances. But these inflows came at a steep cost; interest rates hovered around 10 per cent, roughly double pre-2020 levels.
World Bank Group Chief Economist and Senior Vice President for Development Economics, Indermit Gill, said, “Global financial conditions might be improving, but developing countries should not deceive themselves; they are not out of danger.
“Their debt build-up is continuing, sometimes in new and pernicious ways. Policymakers everywhere should make the most of the breathing room that exists today to put their fiscal houses in order, instead of rushing back into external debt markets.”
Nigeria, classified as an IDA-eligible country, is among the largest borrowers from the World Bank’s concessional financing arm. In 2024, the World Bank provided $18.3bn more in new financing than it received in repayments from IDA-eligible countries, along with a record $7.5bn in grants.
Such support remains critical, as bilateral creditors, mainly foreign governments, have largely retreated, collecting $8.8bn more in repayments than they disbursed in new financing, following debt relief initiatives that in some cases reduced long-term debt by as much as 70 percent.
Meanwhile, the country’s external debt for its over 200 million population stood at approximately $47bn as of June 2025, up from $45.97bn in Q1 2025, according to the Debt Management Office.
Further, the report highlighted the social impact of high debt levels. Developing countries paid a record $415bn in interest alone in 2024, funds that could have been spent on education, healthcare, and essential infrastructure.
In the most heavily indebted countries, where external debt exceeds 200 per cent of export revenue, an average of 56 per cent of the population cannot afford the minimum daily diet necessary for long-term health. In IDA-eligible countries, which include Nigeria, nearly two-thirds of residents face the same challenge.
The document points to a growing reliance on domestic financing. Of 86 countries with available data, more than half saw domestic government debt grow faster than external debt in 2024.
While this reflects progress in developing local capital markets, heavy domestic borrowing carries risks. It can channel domestic banks toward government bonds instead of private-sector lending and, due to shorter maturities, increase the cost of refinancing, the bank explained.
“The rising tendency of many developing countries to tap domestic sources for their financing needs reflects an important policy accomplishment,” the World Bank Group’s Chief Statistician and Director of its Development Data Group, Haishan Fu, said.
“It shows their local capital markets are evolving. But heavy domestic borrowing can spur domestic banks to load up on government bonds when they should be lending to the local private sector. Domestic debt also comes with shorter maturities, which can raise the cost of refinancing. Governments should be careful not to overdo it.”
