Updated February 21st, 2024 at 18:35 IST

World Bank urges emerging economies to accelerate growth

The surge in bond sales has been primarily propelled by relatively stable emerging economies such as Saudi Arabia, Mexico, and Romania.

Reported by: Business Desk
World Bank headquarter | Image:World Bank
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In a stark warning issued by the World Bank, emerging economies are urged to ramp up their growth trajectories to grapple with mounting debt obligations amid soaring borrowing costs. The multilateral lender's cautionary note comes as international bond sales from developing nations soared to unprecedented levels, hitting a staggering $47 billion in January alone.

The surge in bond sales has been primarily propelled by relatively stable emerging economies such as Saudi Arabia, Mexico, and Romania. However, riskier issuers have faced higher borrowing rates, with Kenya notably paying over 10 per cent on a recent international bond issuance - a threshold that experts often deem unsustainable.

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Ayhan Kose, the deputy chief economist of the World Bank, stressed on imperative for accelerated growth in these economies, stating, "When it comes to borrowing, the story has changed dramatically. You need to grow much faster." Kose highlighted the criticality of achieving growth rates that outpace borrowing costs, cautioning that this objective might prove challenging.

The World Bank's Global Economic Prospects report, released in January, painted a sobering picture of the global economy, projecting the weakest performance in three decades for the period spanning 2020-2024. Despite efforts to avert a recession, global growth is expected to decelerate for the third consecutive year, hovering at 2.4 per cent before a modest uptick to 2.7 per cent in 2025 - well below the average of the preceding decade.

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Of particular concern is the acute growth slowdown witnessed in emerging economies, with a significant portion failing to recover from the COVID-19 pandemic, leaving per capita income levels languishing below pre-crisis levels. Kose underscored the ramifications of this stagnation, casting doubt on the feasibility of achieving crucial spending goals in sectors such as education, healthcare, and climate initiatives.

Further exacerbating the challenges faced by emerging economies are geopolitical tensions, particularly in the Middle East, alongside persistent concerns surrounding tight monetary policies and tepid global trade dynamics.

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Considering subdued growth prospects, Kose warned that some emerging economies might be compelled to contemplate debt restructuring measures, including maturity reprofiling or negotiations with creditors. Despite the establishment of initiatives such as the G20's Common Framework aimed at facilitating debt relief for distressed nations, progress has been hindered by bureaucratic delays, leaving countries like Zambia mired in default for prolonged periods.

(With Reuters inputs)

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Published February 21st, 2024 at 18:35 IST