A stark picture of the world’s poorest nations has emerged from a new report by the World Bank, revealing a deepening crisis marked by soaring debt levels and heightened vulnerability to natural disasters. The report, released ahead of the World Bank and International Monetary Fund annual meetings in Washington, underscores a major setback in efforts to eradicate extreme poverty and highlights the urgent need for support.
The 26 countries included in the study, encompassing 40% of the world’s most poverty-stricken population, are experiencing a debt burden that is higher than at any point since 2006. These nations, with per capita incomes below $1,145, are heavily reliant on grants and near-zero interest loans from the International Development Association (IDA) as market financing has dwindled. The average debt-to-GDP ratio for these countries has reached a staggering 72%, an 18-year high, with half of them either in debt distress or at high risk of entering it.
Most of the countries under scrutiny are located in sub-Saharan Africa, stretching from Ethiopia to Chad and Congo, but the list also includes Afghanistan and Yemen. A concerning trend reveals that two-thirds of these nations are grappling with armed conflicts or struggling to maintain order due to fragile institutions and societal instability. This fragility hinders foreign investment and makes these economies vulnerable to cyclical fluctuations in commodity prices, which are their primary exports.
The report highlights the critical role of the IDA in providing a lifeline to these struggling nations. Over the past five years, the IDA has directed a significant portion of its financial resources towards these 26 low-income economies, helping them weather the tumultuous storms of the past years. The IDA is typically replenished every three years with contributions from World Bank member countries. In 2021, the IDA secured a record $93 billion, and World Bank President Ajay Banga aims to exceed that figure with pledges exceeding $100 billion by December 6th.
Beyond the financial challenges, these nations are increasingly susceptible to the devastating impacts of natural disasters. Between 2011 and 2023, natural disasters have resulted in an average annual loss of 2% of GDP for these countries, a staggering five times higher than the average for lower-middle-income nations. This alarming statistic emphasizes the need for substantial investments in resilience building.
The report also emphasizes the responsibility of these economies in contributing to their own improvement. These countries, often characterized by extensive informal sectors operating outside established tax systems, are urged to strengthen their tax collection mechanisms. This includes simplifying taxpayer registration processes, streamlining tax administration, and enhancing the efficiency of public spending.
