Debt crisis deepens as Nigeria, others grapple with $8.9tn historic burden – World Bank

Developing countries, including Nigeria, are facing their worst debt squeeze in at least half a century, with total external debt hitting a record $8.9tn in 2024, according to the World Bank’s 2025 International Debt Report.

The report shows that between 2022 and 2024, developing economies paid $741bn more in principal and interest than they received in fresh financing – the largest net outflow in over 50 years. The trend underscores growing pressure on public finances and heightens risks for global lenders and investors.

Although global interest rates peaked in 2024 and international bond markets partially reopened, the World Bank warned that debt vulnerabilities remain acute. The report, released in December, described the current relief as fragile and insufficient to reverse years of mounting liabilities.

To avert outright defaults, developing countries restructured about $90bn in external debt in 2024, the largest annual restructuring exercise since 2010. Private bondholders injected roughly $80bn more in new financing than they received in repayments, allowing several countries to return to international markets with multi-billion-dollar bond issuances.

However, this access came at a heavy cost. Average interest rates hovered near 10 per cent – about twice pre-2020 levels – significantly increasing future debt-servicing obligations.

World Bank Group Chief Economist and Senior Vice President for Development Economics, Indermit Gill, cautioned against complacency.

“Global financial conditions might be improving, but developing countries should not deceive themselves; they are not out of danger,” he 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, classified as an International Development Association (IDA)-eligible country, remains among the largest beneficiaries of the World Bank’s concessional financing. In 2024 alone, the Bank disbursed $18.3bn more in new financing than it received in repayments from IDA-eligible countries, alongside a record $7.5bn in grants.

This support has become increasingly critical as bilateral creditors – mainly foreign governments – have pulled back sharply. According to the report, bilateral lenders collected $8.8bn more in repayments than they provided in new financing, following debt-relief initiatives that, in some cases, cut long-term debt stocks by up to 70 per cent.

For Nigeria, the pressures remain significant. The country’s external debt stood at about $47bn as of June 2025, up from $45.97bn in the first quarter of the year, according to figures from the Debt Management Office. With a population exceeding 200 million, debt servicing continues to constrain fiscal space amid rising social and infrastructure needs.

The World Bank also highlighted the severe social consequences of high debt levels. Developing countries paid a record $415bn in interest alone in 2024 — resources that could otherwise have been channelled into education, healthcare and critical infrastructure.

In the most heavily indebted economies, where external debt exceeds 200 per cent of export revenues, an average of 56 per cent 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.

The report further noted a growing shift toward domestic borrowing. 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 developing local capital markets, the World Bank warned of significant risks. Heavy domestic borrowing can crowd out private-sector lending as banks increasingly favour government securities. Shorter debt maturities also raise refinancing costs and heighten rollover risks.

World Bank Group Chief Statistician and Director of the Development Data Group, Haishan Fu, acknowledged the mixed implications of the shift.

“The rising tendency of many developing countries to tap domestic sources for their financing needs reflects an important policy accomplishment,” she 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.”