SLOWER GROWTH in major economies like China, as well as ongoing wars and elevated inflation threaten growth among International Development Association (IDA) borrowers, which account for more than half of the world’s poorest people, the World Bank said. 

“A sharper-than-expected near-term slowdown in major economies, including China, could have severe consequences for IDA countries,” the bank said in its The Great Reversal: Prospects, Risks, and Policies in International Development Association Countries report.

China serves as a major export market for IDA countries, accounting for more than 12% of the latter’s exports.

In its April update, the World Bank cut its growth outlook for China to 4.5% this year and 4.3% next year, from its previous forecast of 5.1% and 4.4% for 2024 and 2025.

There are 75 countries that borrow low-interest loans and grants from the World Bank’s IDA. Of the total, 14 countries are from East Asia, seven from South Asia, and four from Europe and Central Asia.

Around 70% of the world’s extreme poor come from these countries, accounting for 92% of the world’s food-insecure people.

“They have made notable progress on some key development indicators in recent decades, including on access to basic services, life expectancy, and poverty reduction. However, debt vulnerabilities have increased, and structural concerns continue to loom large today,” the World Bank said in the report.

Gross domestic product (GDP) growth in IDA countries declined 0.3% in 2020 following the coronavirus pandemic.

“The pandemic has undone three years of progress and other crises have taken a heavy toll on poverty reduction,” the World Bank said.

IDA countries are projected to grow 4.3% in 2024 and 4.5% in 2025. Median headline inflation peaked in July 2022 at nearly 11%, cooling to 5% in recent months. However, this remains above its pre-pandemic average.

“The world cannot afford to turn its back on IDA countries… The welfare of these countries has always been crucial to the long-term outlook for global prosperity,” according to Indermit Gill, the World Bank Group’s chief economist and senior vice-president.

Climate change-related risks also continue to hamper IDA countries’ growth. The World Bank estimates that economic losses from natural disasters are worth 1.3% of their GDP, or four times higher than the average of emerging market and developing economies.

War in the Middle East and Ukraine could impact oil supply and increase food and fuel prices. This will also result in currency depreciations, hotter inflation and higher external debt servicing costs. 

The extremely poor in IDA countries jumped from 473 million in 1990 to 498 million in 2023, according to the report.

“IDA countries have incredible potential to deliver strong, sustainable, and inclusive growth. Realizing this potential will require them to implement an ambitious set of policies centered on boosting investment,” Ayhan Kose, World Bank Deputy Chief Economist and Director of the Prospects Group, said in a statement.

“This means improving fiscal, monetary, and financial policy frameworks and advancing an array of structural reforms to strengthen institutions and enhance human capital,” he added.

IDA countries must utilize their young workforces by addressing skills mismatches and investing in education, social protection and childcare support to foster economic growth.

They must also take advantage of their key mineral deposits like copper, gold and tin, as well as solar energy, to aid in the world’s transition to clean energy. — Beatriz Marie D. Cruz