Financial crisis looms over developing countries, says World Bank

    At World Bank headquarters in Washington on January 17, 2019.

    The optimism will have been short-lived. After the post-pandemic rebound in global economic activity in 2022 and the hopes raised by the gradual lifting of the zero Covid strategy in China in January 2023, growth is ultimately proving less sustainable than expected. According to the latest forecasts from the World Bank, published on Tuesday June 6, the pace of the world economy is expected to slow down from 3.1% in 2022 to 2.1% in 2023.

    This brake is not trivial. The economy is currently “in a precarious situation”weakened by high inflation and restrictive monetary policies led by the major central banks to try to stem it, explains the chief economist of the World Bank, Indermit Gill.

    While no country has been spared by the credit crunch observed in recent months, it is the situation in emerging and developing economies that is worrying specialists. Report after report, growth forecasts are revised downwards. In the end, this should not exceed 2.9% in 2023, according to the latest World Bank forecasts, against the 4.4% expected in the estimates published in January 2022.

    “Act quickly”

    A revision largely attributable to the tense financial situation: a quarter of developing countries – the least solvent – ​​currently no longer have access to international bond markets.

    The risk of a major debt crisis in the most vulnerable countries cannot therefore be ruled out, according to the authors of the report. Ayhan Kose, deputy chief economist of the financial institution, urges policymakers in these countries to“act quickly” in order to avoid a “financial contagion”. One in two low-income countries is already in debt distress or at high risk, a figure that could rise further in the coming months.

    Read also: The United States Facing the Threat of Default: Five Questions About the “Debt Ceiling”

    This worrying situation – mainly fueled by “Rising U.S. Treasury Yields”, according to the report – has already visible repercussions on the budget of low-income countries, in which the cost of debt reaches 70% of GDP on average. However, each rate increase reduces the amounts allocated by the States to the “social safety net”.

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