Oct 15 2024: The 26 poorest nations in the world, which house 40% of the global population living in extreme poverty, are facing their highest levels of debt since 2006, according to a World Bank report released on Sunday. These countries are increasingly vulnerable to natural disasters and other shocks, highlighting significant financial strain.
The report reveals that these economies are, on average, poorer today than they were before the COVID-19 pandemic, despite much of the rest of the world recovering and resuming growth.
Published just before the World Bank and International Monetary Fund’s annual meetings in Washington, the findings signal a major setback in global efforts to eradicate extreme poverty. The report also emphasizes the World Bank’s aim to raise $100 billion this year to replenish the International Development Association (IDA), a fund dedicated to supporting the world’s poorest countries.
The 26 countries studied, each with annual per capita incomes below $1,145, are increasingly dependent on IDA grants and low-interest loans, as market financing options have dried up. Their average debt-to-GDP ratio has risen to 72%, an 18-year high, with half of these nations either in or at risk of debt distress.
Most of the countries included in the study are in sub-Saharan Africa, such as Ethiopia, Chad, and Congo, but Afghanistan and Yemen are also on the list.
Additionally, two-thirds of these countries are either embroiled in conflicts or face governance challenges due to institutional fragility, deterring foreign investment. Their heavy reliance on exporting commodities makes them vulnerable to boom-and-bust cycles in global markets.
“At a time when much of the world has stepped back from supporting these nations, IDA has been their lifeline,” said Indermit Gill, World Bank Chief Economist. Over the past five years, IDA has directed most of its resources to these low-income economies, helping them navigate the severe setbacks they’ve endured.
IDA, typically replenished every three years through contributions from World Bank member countries, raised a record $93 billion in 2021. World Bank President Ajay Banga aims to surpass that by securing over $100 billion in pledges by December 6.
The report also highlights the growing impact of natural disasters on these countries. Between 2011 and 2023, natural disasters resulted in average annual losses equal to 2% of GDP for these nations—five times the average loss for lower-middle-income countries. This underscores the urgent need for increased investment in disaster resilience.
The World Bank also recommends that these economies take further steps to strengthen their financial standing, such as improving tax collection systems, simplifying taxpayer registration, and enhancing the efficiency of public spending.
