Debt Levels and Vulnerability to Natural Disasters at Alarming Highs
WASHINGTON: The World Bank reports that the 26 poorest countries, home to 40% of the world’s most impoverished people, are facing their worst financial crisis since 2006. These nations are burdened with rising debt and increasingly exposed to natural disasters and economic shocks.
According to the report, these countries are now poorer than they were before the COVID-19 pandemic, even though most of the world has recovered economically. The findings, released ahead of the annual World Bank and IMF meetings, highlight a significant setback in global efforts to eradicate extreme poverty.
The report also emphasizes the importance of the International Development Association (IDA), the World Bank’s fund for low-income countries, which aims to raise $100 billion by December 6 to replenish resources for these vulnerable economies.
Debt Crisis and Economic Challenges
The 26 economies studied—characterized by annual per-capita incomes below $1,145—now rely heavily on IDA grants and near-zero-interest loans, as access to market financing has dried up. The average debt-to-GDP ratio has surged to 72%, the highest in 18 years, with half of these nations either already in debt distress or at high risk.
Most of these countries are in sub-Saharan Africa, including Ethiopia, Chad, and Congo, but the list also includes Afghanistan and Yemen. Two-thirds of these nations are experiencing conflicts or institutional instability, which hampers foreign investment and exacerbates their reliance on exports, leaving them vulnerable to boom-and-bust cycles.
IDA’s Role and the Growing Impact of Natural Disasters
Over the last five years, the IDA has become a critical support system, providing essential funding to keep these economies afloat. Indermit Gill, the World Bank’s chief economist, highlighted the significance of this support, stating, “At a time when much of the world turned away from the poorest nations, IDA became their lifeline.”
Natural disasters have worsened the economic situation in these countries, with annual losses averaging 2% of GDP—five times higher than in lower-middle-income nations—between 2011 and 2023. The World Bank stresses the need for greater investment to address these challenges and build resilience.
Recommendations for Self-Sufficiency
The report urges these economies to improve tax collection and public spending efficiency. It suggests simplifying taxpayer registration and administration to encourage more formal economic activity, helping these nations become less reliant on external aid.
In 2021, the IDA raised $93 billion, and the World Bank, under President Ajay Banga, aims to surpass that figure with pledges of over $100 billion by the end of 2023.
