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World Bank Urges Faster Growth for Emerging Economies’ Debt

World Bank Urges Faster Economic Growth Amid Rising Debt Concerns

The World Bank has issued a stern warning regarding the pressing need for developing nations to bolster their sluggish economic growth amidst soaring borrowing costs. This cautionary note from the multilateral lender comes on the heels of a record-setting international bond sales month, totaling a staggering $47 billion in January alone. Notably, countries like Saudi Arabia, Mexico, and Romania spearheaded this surge, although riskier issuers are now tapping into markets at significantly higher rates.

Changing Dynamics of Borrowing

Ayhan Kose, the World Bank’s deputy chief economist, emphasized the shifting landscape of borrowing, stating, “When it comes to borrowing, the story has changed dramatically. You need to grow much faster.” He likened the concern over high borrowing costs to that of a mortgage with a 10 percent interest rate, expressing understandable apprehension.

Economic Growth Challenges

Despite the urgency for accelerated growth, achieving faster economic expansion poses a formidable challenge. The World Bank’s Global Economic Prospects report, released in January, paints a sobering picture of the global economy’s trajectory. Projections indicate that the world economy is poised for its weakest performance in half a decade, with growth expected to linger at 2.4 percent through 2024 before a modest uptick to 2.7 percent in 2025, still well below the 3.1 percent average of the previous decade.

Struggles in Emerging Economies

Emerging economies bear the brunt of this growth slowdown, with approximately one-third showing no signs of recovery since the onset of the COVID-19 pandemic. Alarmingly, these nations continue to grapple with per capita income levels below those of 2019, casting doubt on their ability to sustain crucial investments in education, health, and climate initiatives.

Downside Risks and Debt Concerns

A myriad of downside risks exacerbates the situation, including escalating conflicts in the Middle East, tight monetary policies, and sluggish global trade. The World Bank underscores the pivotal role of trade in poverty reduction and revenue generation for emerging markets, further underscoring the urgency of addressing these challenges.

Implications for Debt Restructuring

In light of persistently low growth, some emerging economies may confront the specter of debt restructuring. Ayhan Kose highlights the imperative of establishing frameworks for debt restructuring, noting that the process remains fraught with challenges despite initiatives like the G20’s Common Framework launched in response to the pandemic-induced financial turmoil.

Path Forward

The path forward hinges on revitalizing economic growth, which Kose analogizes to a potent remedy. However, the World Bank warns that without a substantial uptick in growth coupled with favorable financing conditions, the road ahead for debt-distressed countries remains arduous.

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