A recent World Bank report reveals that the 26 poorest countries, home to 40% of the world’s impoverished population, are facing unprecedented debt levels, the highest since 2006. These nations, now more vulnerable to natural disasters and other economic shocks, are poorer on average than before the Covid-19 pandemic, even as the global economy recovers.
The report, published just before the upcoming World Bank and IMF meetings in Washington, highlights a severe setback to eradicating extreme poverty and underscores the World Bank’s target of raising $100 billion to replenish its fund for the poorest countries, the International Development Association (IDA). The report shows these low-income countries, with per capita incomes below $1,145, are increasingly reliant on IDA’s grants and low-interest loans, as access to market financing dwindles. Their average debt-to-GDP ratio has reached 72%, marking an 18-year peak, and half of these countries face severe debt distress.
Most of these nations, located in sub-Saharan Africa, with some in Afghanistan and Yemen, are plagued by institutional instability and armed conflicts, which deter foreign investments. Nearly all are commodity exporters, making them susceptible to economic fluctuations. “IDA has been a crucial support,” said World Bank Chief Economist Indermit Gill. “It has provided substantial financial aid to these economies, keeping them stable amid significant setbacks.”
The IDA fund, replenished every three years, received $93 billion in 2021, and World Bank President Ajay Banga is working towards surpassing that with over $100 billion in pledges by December.
The report also emphasizes that these nations have suffered heavily from natural disasters, incurring average annual losses of 2% of GDP between 2011 and 2023, five times higher than lower-middle-income countries. The World Bank recommends that these economies enhance tax systems and public spending efficiency to aid self-sufficiency.
