Historic Reversal: 75 Economies at Risk Amid Global Challenges

In a striking shift, 75 of the world's most vulnerable economies are experiencing a significant reversal in their fortunes, leading to heightened concerns about poverty and income inequality. These nations, which receive support from the World Bank's International Development Association (IDA), are facing unprecedented challenges exacerbated by recent global crises.

Speaking on "Expert Answers," Samuel Owusu Baafi and World Bank senior economist Colette Wheeler highlighted the severity of the situation. Wheeler, co-author of "The Great Reversal: Prospects, Risks and Policies in International Development Association Countries," emphasized that progress achieved in poverty alleviation and income growth has turned into substantial losses.

Reversal Driven by Multiple Shocks

Wheeler detailed the multiple shocks contributing to this reversal. The COVID-19 pandemic, combined with geopolitical conflicts, rising inflation, and tighter financial conditions, disrupted the developmental strides made by these countries. The pandemic exacerbated preexisting issues like debt and food insecurity, while also eroding human capital through impacts on health and education systems.

Growth in IDA countries over the 2020-2024 period is projected to be the weakest since the 1990s. Wheeler noted that in half of these countries, the income gap with the wealthiest economies is widening for the first time this century. Alarmingly, one-third of IDA countries are now poorer in per capita income terms than they were before the pandemic.

Opportunities for Reversing the Trend

Despite the grim outlook, there are opportunities to halt this decline. Wheeler pointed out that IDA countries possess significant potential in two key areas: natural resources and favorable demographic trends. Many of these nations are rich in critical minerals essential for the global energy transition. Additionally, their young populations offer a demographic dividend that could drive economic growth if harnessed effectively.

To realize this potential, IDA countries need to implement ambitious domestic policy reforms. This includes boosting investment, enhancing tax systems, and improving expenditure efficiency. Social protection measures are also crucial to ensure an inclusive recovery, while maintaining price stability and aligning fiscal and monetary policies will help stabilize economies.

Global Assistance Crucial for Recovery

As IDA countries face increased investment needs post-pandemic, global assistance becomes more critical. The World Bank estimates that achieving development, infrastructure, and climate resilience goals will cost about 10% of GDP per year for the poorest IDA countries. This is a burden they cannot shoulder alone.

Historically, global support has enabled significant progress. Wheeler cited examples like the Republic of Korea, China, and India, which have graduated from IDA and become key engines of the global economy. These success stories underscore the potential for transformative development with the right support.

As the World Bank prepares for the replenishment of IDA funds later this year, the global community's role in assisting these vulnerable economies is more vital than ever. By enacting necessary reforms and receiving adequate support, these nations can reverse the current trends and work towards a brighter future.

Conclusion

The historic reversal underway in IDA countries presents a formidable challenge. However, with strategic reforms and robust global assistance, there is hope for reversing this trend and achieving sustainable development. The international community's commitment to supporting these nations will be crucial in turning the tide on this great reversal.