World Bank Warns Nigeria, Others as Investors Shun Debt-ridden Economies
The World Bank has warned that foreign private capital is retreating from developing economies such as Nigeria and others due to rising debt levels and weak growth prospects, and called for urgent debt reforms.
The warning came in a blog post titled “The Looming Global Debt Disaster”, which the institution shared on Friday via X (formerly Twitter).
The lender warned that total global debt is now nearly 25 per cent higher than it was at the onset of the COVID-19 pandemic, when it was already at a record high. The surge in borrowing, compounded by a sharp rise in interest rates, is pushing many low-income countries into what the bank described as a “doom loop.”
Developing countries, especially the 78 poorest eligible to borrow from the International Development Association, are feeling the brunt, the bank stated.
These countries, according to the financier, represent a quarter of the global population and house a large share of the 1.2 billion young people expected to enter the workforce in the next 10 to 15 years. But many of them are now slashing investment in critical sectors like education, healthcare, and infrastructure in order to service ballooning debts.
Economic Confidential reported Nigeria’s debt owed to the World Bank totals approximately $17.32bn, with about $16.84bn owed to the International Development Association IDA and around $485m to the International Bank for Reconstruction and Development as of early 2025.
Nigeria’s overall debt burden continues to rise, with the government proposing an external borrowing plan of approximately $21.5bn to fund infrastructure and other projects
“Foreign private capital is unlikely to flow into highly indebted economies with weak growth prospects,” the blog post stated. “Private investors will correctly assume that any gains from economic growth will simply be taxed to pay off the debt.”
The report highlighted that net interest costs have doubled for half of all developing countries. Government interest payments rose from below nie per cent of revenues in 2007 to about 20 per cent in 2024, signaling a structural crisis in public finance management.
Over the past 15 years, the debt build-up has averaged six percentage points of GDP per year in many developing nations. According to the financier, such rapid accumulation significantly increases the risk of a financial crisis, estimated at roughly a 50 per cent chance.
Global economic conditions are also deteriorating. The forecast for global GDP growth in 2025 has been downgraded to 2.2 per cent, down from the 2.6 per cent predicted earlier this year, and well below the average growth rates seen in the 2010s.
Adding to the challenge is the sustained elevation of interest rates in advanced economies. Central banks in these countries are expected to keep rates at an average of 3.4 per cent this year and next, over five times higher than the annual average between 2010 and 2019.
The World Bank argued that the current global debt architecture is outdated and ineffective, particularly in identifying when countries are insolvent rather than merely illiquid. It called for swifter restructuring mechanisms and warned against continued reliance on domestic borrowing, which is stifling private-sector growth.
To reverse the trend, the institution urged debt-laden governments to prioritise fiscal consolidation and implement trade and investment-friendly reforms.
It also proposed setting prudent debt-to-GDP thresholds, 40 per cent for low-income countries and 60 per cent for high-income nations, to prevent future crises.
“The world cannot afford another decade of drift and denial,” the blog warned.