In a stark advisory, the World Bank emphasizes the critical need for rapid economic expansion in emerging economies to counter the escalating challenges of surging debt and heightened borrowing costs. As international bond sales from developing nations reach a record-breaking $47 billion in January, concerns arise over the sustainability of debt, with the World Bank urging nations to achieve faster growth to navigate the altered global economic landscape.
High Borrowing Costs Transform Economic Imperatives
The World Bank underscores a “dramatic” shift in the narrative, emphasizing that the repercussions of high borrowing costs necessitate a substantial acceleration in economic growth for developing nations. The warning comes as some riskier issuers, including Kenya, grapple with increased market rates, with the threshold of 10% considered by experts as potentially rendering borrowing unaffordable.
Global Economic Prospects Forecast Unsettling Trends
The Global Economic Prospects report by the World Bank, published in January, predicts the weakest half-decade performance in 30 years during 2020-2024, even in the absence of a recession. Global growth is expected to decelerate for the third consecutive year, reaching 2.4%, further dipping below the 3.1% average of the 2010s. The deceleration disproportionately affects emerging economies, posing a substantial challenge to education, health, and climate spending goals.
Debt Restructure Looms Amidst Lingering Economic Woes
World Bank Deputy Chief Economist Ayhan Kose warns that if growth remains sluggish, some emerging economies may confront the need to restructure debt. The potential measures include reprofiling maturities or negotiating haircuts with creditors. Despite the existence of the Common Framework launched by G20 nations in 2020 to facilitate debt-distressed countries’ recovery, delays and complexities persist, exemplified by Zambia’s extended default situation.
“An Easy Path Out” Dependent on Miraculous Growth
Kose highlights the dilemma facing emerging economies, stating that without a substantial and timely improvement in growth, an “easy path out of this problem” is unlikely. The urgency of the situation becomes apparent as the report emphasizes the interconnectedness of growth, financing conditions, and the potential for debt restructuring, urging nations to navigate this precarious landscape with strategic economic measures.
