The Debt Trap Is No Longer About How Much We Borrow, But What We Have Left After Repayment

By Enam Obiosio

There is a dangerous illusion in the global development debate that I believe we must confront: that access to international finance is, in itself, evidence of economic progress. I find it difficult to celebrate the return of private creditors to developing economies while ignoring the expensive obligations accompanying their money. We cannot mistake the ability to borrow for the capacity to develop, or call an economy resilient simply because lenders extend more credit.

The World Bank’s latest International Debt Report brings this contradiction into sharp focus. External debt in developing countries reached a record $9.4 trillion in 2025, rising at the fastest pace since the pandemic. Much of the increase came from private financing, with borrowing from private creditors and bond issuance by public enterprises rising nearly 35 percent. I believe we must look beyond the headline figure: developing countries are borrowing more, paying more and retaining less capacity for long-term development.

I do not subscribe to the argument that debt is inherently destructive. Borrowing can finance infrastructure, strengthen productive capacity, improve public services and support sustained economic growth. For countries with limited domestic resources, external financing can provide an important development pathway. But I insist that the justification for borrowing must rest on what the money produces, not merely on whether creditors are prepared to lend it.

We should be concerned when financing costs rise faster than economies’ capacity to generate the resources required for repayment. The World Bank reports that the poorest developing countries paid an average interest rate of 8.2 percent on new private loans and bonds in 2025, the highest for that category since 1989. This is a warning about the increasingly high price of access to capital.

When we borrow at such rates, we commit future governments and public revenues to interest obligations. Every amount devoted to servicing expensive debt reduces fiscal space for competing priorities. I therefore believe we must ask: how much future development are we surrendering to finance present expenditure?

The figures make this contradiction difficult to ignore. Low- and middle-income countries paid $1.4 trillion in principal and interest repayments in 2025, a 1.9 percent increase and the fifth consecutive annual rise. Between 2022 and 2025, developing countries paid $436 billion more in debt servicing than they received in new financing. Countries needing capital for infrastructure, institutions, education and productivity are transferring more to creditors than they receive in fresh financing. I find this troubling because it further constrains economies already short of fiscal space.

The problem becomes more troubling when we consider how governments manage repayment obligations. The World Bank observed that several countries issued new bonds to buy back maturing debt. In practical terms, they refinance existing obligations with fresh borrowing, sometimes at higher interest rates. This may ease immediate repayment pressures, but it does not necessarily reduce the underlying debt burden.

I believe we must distinguish refinancing from resolving a debt problem. Refinancing changes the timing and possibly the terms of repayment. It does not automatically improve an economy’s capacity to generate the resources required to meet those obligations. When new debt replaces old debt at a higher cost, a temporary liquidity problem can become a persistent fiscal burden.

We should resist judging sovereign creditworthiness solely by international demand for government bonds. Strong demand may indicate investor confidence in an instrument, but it does not establish that a country can repay without compromising development priorities. In my view, this distinction is central to assessing sovereign financial sustainability.

Haishan Fu, Chief Statistician at the World Bank Group, warned that developing countries were borrowing more, paying more and, in many cases, leaving less for long-term development. He pointed to global shocks, including the pandemic, inflation associated with the wars in Ukraine and Iran, and disruption to international trade arising from United States tariffs.

I do not think we can dismiss these pressures as external events with limited domestic consequences. They affect how developing countries earn revenue, attract investment, trade and meet obligations. When shocks occur, governments need fiscal room to respond. But when debt servicing consumes substantial resources, that room narrows. The more constrained our finances become, the less capacity we have to respond.

I believe we must move the conversation from borrowing capacity to borrowing quality. We need to know what each loan finances, what economic value it is expected to create, how that value will be measured and what revenue will support repayment. We must select externally financed projects carefully and distinguish productive investment from borrowing that merely postpones difficult fiscal decisions.

For developing countries, the challenge is not simply to reduce borrowing. That would be inadequate for economies with substantial infrastructure and development needs. Rather, we must scrutinise the terms, purpose and expected returns of every borrowing decision. I cannot see how we can justify expensive liabilities without a credible relationship between borrowed money and productive capacity.

We should examine our dependence on private financing. Private capital has an important place in development, but private creditors operate under different commercial considerations from multilateral institutions. Where borrowing costs are higher, governments must assess whether expected returns justify the expense. I believe access to private capital requires scrutiny of its cost, purpose and long-term implications.

We also need stronger domestic resource mobilisation. A country relying excessively on external borrowing to finance recurrent obligations or sustain public expenditure remains vulnerable to changing international conditions. Stronger revenue systems, efficient public spending and credible fiscal management are essential. We cannot build sustainable economies on financing that continually requires fresh external borrowing.

For Nigeria and other developing economies, this debate is particularly relevant. We cannot measure progress by capital attracted, bond subscriptions or the ability to refinance obligations. We must measure it by productive assets created, revenues generated, employment sustained and economic capacity retained after repayment.

The real question is whether an economy can service its obligations while financing investments necessary for future growth. If debt servicing consistently takes priority over essential development expenditure, we must question the financing strategy, regardless of how successfully new borrowing is arranged. I believe this is where economic management must ultimately be judged.

Ultimately, we cannot borrow our way into development without building the productive capacity that makes repayment possible. We cannot treat fresh credit as a substitute for economic transformation. Nor can we transfer an increasing share of future public resources to creditors while expecting governments to deliver the development commitments citizens demand.

I believe the World Bank has provided more than another set of debt statistics. It has exposed a structural contradiction in developing economies’ financing. We are gaining access to capital, but its price is becoming harder to sustain. We are refinancing obligations, but refinancing is not reducing indebtedness. We are borrowing for development, yet the cost of borrowing is squeezing resources for long-term development.

We must confront this contradiction before it becomes permanent. The question is no longer simply how much more we can borrow. It is how much productive value we can create from what we have borrowed, how much revenue we can generate to meet obligations, and how much financial freedom we can preserve for the next generation.

Enam Obiosio is a public relations and investor relations practitioner and journalist with experience in arts and business journalism, with expertise spanning financial markets, economic policy, infrastructure, corporate communications, and the creative economy.