Recent World Bank analysis shows how the 26 poorest economies are facing worsening challenges and vulnerabilities
These nations are struggling with high levels of debt and increasingly frequent natural disasters, worsened by declining international aid.
Rising debt and less aid
The analysis highlights that these economies, with per capita incomes below $1,145 annually, have seen their financial health deteriorate rapidly.
Government debt now averages 72 percent of GDP, the highest in 18 years, with nearly half of these nations either in debt distress or at high risk. Compounding their financial strain, international aid as a share of GDP has plummeted to a 21-year low of 7 percent by 2022, leaving many reliant on expensive financing that deepens their economic woes.
IDA’s role in low-income economies
The World Bank’s International Development Association (IDA) appears as a crucial lifeline. IDA, providing grants and near-zero-interest loans, has become the largest source of affordable financing for these nations.
It has played a key role in supporting basic needs such as healthcare, education, and infrastructure development. However, the scale of investment needed to lift these economies from chronic emergency to sustainable growth is unprecedented.
The lasting impact of COVID-19 on financial health
The COVID-19 pandemic further strained these economies, tripling primary deficits and diverting resources away from long-term priorities like health and education towards immediate needs and debt servicing. This shift has slowed progress toward key development goals and perpetuated cycles of economic fragility.
Despite these challenges, there is potential for growth within these nations. Large natural resources and a growing working-age population provide opportunities, but they are often offset by institutional fragility, conflict, and the volatility of commodity markets. Natural disasters, occurring at five times the average rate of lower-middle-income countries, further compound their challenges, necessitating costly investments in climate adaptation.
The analysis calls for a shift in international support and domestic policy frameworks to enable these economies to break free from their current traps. Accelerated investment in sustainable development, improved economic management, and resilience-building against shocks are imperative. Achieving these goals by 2030 demands not only increased financial support but also innovative approaches to fostering stability and inclusive growth.
