The 26 poorest economies in the world are deeper in debt than at any time since 2006 and more vulnerable to natural disasters and other shocks, the World Bank Group said on Sunday, October 13, citing its latest study.
“Yet international aid as a share of their GDP has dwindled to a two-decade low, forcing many to obtain financing on punishing terms,” Washington-based development lender said in a statement .
The study titled ‘Fiscal Vulnerabilities in Low-Income Countries’ analyses the causes of chronic fiscal weakness in the economies with annual per capita incomes of less than $1,145.
Of 26, 22 countries categorised by the World Bank Group as low-income economies are from Africa, and the remaining from Asia.
The list include South Sudan, Burkina Faso, Liberia, Sudan, Burundi, Madagascar, Central African Republic, Malawi, Togo, Chad, Mali, Uganda, Democratic Republic of the Congo, Mozambique, Eritrea, Niger, Ethiopia, Rwanda, the Gambia, Sierra Leone, Guinea-Bissau and Somalia.
Similarly, Afghanistan, Democratic People's Republic of Korea, Syrian Arab Republic and Republic of Yemen are the poorest countries from Asia.
The study finds that these economies—home to almost 10 percent of the world’s population and nearly 40 percent of the world’s poor—have become poorer, on average, than they were on the eve of Covid-19, even though the rest of the world has largely recovered.
The government debt, on average, of these countries stands at 72 percent of GDP, an 18-year high, according to the study. Moreover, nearly half of these economies—twice than that in 2015—are either in debt distress or at high risk of it.
The net official development assistance as a share of GDP fell to such countries was a 21-year low of 7 percent in 2022.
The group claimed its International Development Association (IDA) has been the single-largest source for such economies to get low-cost financing from abroad.
“IDA provides grants and near-zero-interest-rate loans to 77 of the world’s most vulnerable economies, and it is crucial to the 26 poorest among them,” the statement reads. “In 2022, IDA alone provided nearly half of all the development aid that these low-income economies received from multilateral organisations.”
The COVID-19 pandemic sharply increased spending needs in low-income economies, causing primary deficits to triple to 3.4 percent of GDP in 2020. Since then, low-income economies have been unable to fully unwind these deficits—which stood at 2.4 percent of GDP in 2023, nearly three times the average of other developing economies. It has caused the governments to divert their spending from crucial longer-term priorities toward immediate needs such as the wages of government workers, and debt servicing.
The analysis also shows that low-income economies are far more vulnerable to natural disasters and adapting to climate change than other developing economies,
“Between 2011-2023, natural disasters were associated with average annual losses of 2 percent of GDP—five times the average losses in lower-middle-income countries,” the statement reads. “The costs of adapting to climate change are also higher for low-income economies than for other developing economies—the equivalent of 3.5 percent of GDP per year, five times the rate for lower-middle-income countries.”
The study indicates that the low-income economies will have to significantly increase investment and deliver much better performance if they are to meet their development goals by the end of this decade.
Ayhan Kose, the World Bank’s Deputy Chief Economist and Director of the Prospects Group, says in the statement that the low-income economies can broaden their tax base by simplifying taxpayer registration and tax collection and administration.
“They also have plenty of room to improve the efficiency of public spending,” said Kose. “But these economies also need stronger help from abroad—both in the form of greater international cooperation on trade and investment and in the form of much larger support for IDA, which can work with the private sector to mobilise additional resources and help facilitate structural reforms.”