Oct 14 2024: The world’s 26 poorest nations, home to 40% of the global population living in extreme poverty, are experiencing their worst financial situation since 2006, according to a new World Bank report released on Sunday. These countries are increasingly vulnerable to debt crises, natural disasters, and economic shocks.
The report highlights that, on average, these economies are poorer now than they were before the COVID-19 pandemic, even as the rest of the world has largely recovered and returned to growth.
Published ahead of the World Bank and International Monetary Fund (IMF) annual meetings in Washington, the report underscores a significant reversal in efforts to eradicate extreme poverty. It also emphasizes the World Bank’s ongoing initiative to raise $100 billion for the International Development Association (IDA), its fund dedicated to supporting the world’s poorest countries.
The 26 nations, defined as having annual per-capita incomes below $1,145, are increasingly dependent on IDA grants and near-zero-interest loans as access to market financing has diminished. The report reveals that their average debt-to-GDP ratio has surged to 72%, the highest in 18 years, with half of these countries either in debt distress or at high risk of it.
Most of the countries in this group are located in sub-Saharan Africa, including Ethiopia, Chad, and Congo, but also include Afghanistan and Yemen. Two-thirds of the nations are either in conflict or struggling with social and institutional instability, which discourages foreign investment. Nearly all of them rely on commodity exports, making them highly vulnerable to volatile boom-and-bust cycles.
World Bank chief economist Indermit Gill emphasized the critical role of IDA, saying, “When much of the world turned away from these countries, IDA became their lifeline. Over the past five years, it has directed the bulk of its financial resources to the 26 poorest economies, helping them navigate unprecedented challenges.”
IDA typically receives new funding every three years through contributions from World Bank shareholder countries. In 2021, it raised a record $93 billion, and World Bank President Ajay Banga aims to secure over $100 billion in pledges by December 6, 2024.
Natural disasters have also disproportionately affected these economies. From 2011 to 2023, natural disasters caused average annual losses equivalent to 2% of their GDP, which is five times higher than the average for lower-middle-income countries. This underscores the urgent need for greater investment in climate resilience.
The report also urged these countries to improve their internal financial systems, especially by increasing tax revenue. Recommendations included simplifying taxpayer registration, streamlining tax administration, and enhancing public spending efficiency to support their own economic recovery.
