World Bank Report: Poorest Nations Face Highest Debt Levels in 18 Years Amid Rising Conflicts and Disasters
A World Bank report indicates that 26 of the poorest nations are experiencing their highest debt levels since 2006, grappling with challenges related to post-pandemic recovery, ongoing conflicts, and heightened disaster risks
Poor Countries
A new report from the World Bank reveals that the 26 poorest countries, home to 40% of the global population living in extreme poverty, are facing their highest debt levels since 2006. These nations are increasingly vulnerable to natural disasters and other external shocks.
The report highlights that, on average, these economies are in a worse position today than before the COVID-19 pandemic. While most of the world has seen economic recovery, these countries continue to struggle, reflecting a growing economic divide.
Setback in Poverty Eradication Efforts
Released just ahead of the World Bank and International Monetary Fund’s annual meetings in Washington, the report underscores a significant setback in the fight against extreme poverty. This comes as the World Bank aims to raise $100 billion to replenish the International Development Association (IDA), which provides essential financial assistance to the world’s poorest nations.
The 26 poorest countries, with annual per capita incomes below $1,145, are increasingly reliant on IDA grants and near-zero interest loans. The report reveals an alarming debt-to-GDP ratio averaging 72%, the highest level in 18 years. Half of these nations are either in debt distress or at high risk of reaching that point.
Approximately two-thirds of these countries are embroiled in conflict or suffer from institutional fragility, deterring foreign investment. Moreover, nearly all of their economies depend heavily on commodity exports, making them vulnerable to market fluctuations.
IDA's Support for Poor Economies
World Bank Chief Economist Indermit Gill stated that the IDA has been crucial in supporting these economies over the past five years. As traditional funding sources have diminished, IDA has channelled significant resources to help these nations navigate economic challenges.
The IDA, replenished every three years through contributions from World Bank member countries, raised a record $93 billion in 2021. World Bank President Ajay Banga aims to surpass this amount, targeting over $100 billion in pledges by December 2024.
The report also emphasises the increasing impact of natural disasters on these nations. Between 2011 and 2023, such events led to annual economic losses averaging 2% of GDP—five times the average for lower-middle-income countries. This situation underscores the urgent need for enhanced investment in disaster resilience.
Additionally, the report calls for these countries to bolster their domestic financial systems by improving tax collection and public spending efficiency. Given the prevalence of large informal economies operating outside the tax system, simplifying taxpayer registration and enhancing administrative efficiency are critical steps toward achieving self-sufficiency.
