The World Bank has issued a stark warning about the significant shift in the borrowing landscape for developing nations, emphasizing the urgent need for these economies to revitalize their sluggish economic growth. This cautionary message comes amid a surge in international bond sales by emerging market governments, reaching a historic high of $47 billion in January. While more stable emerging economies like Saudi Arabia, Mexico, and Romania have led this trend, riskier issuers are now accessing markets at higher interest rates. For instance, Kenya recently issued a new international bond with a yield of over 10%, a level often deemed unsustainable by experts.
Ayhan Kose, the World Bank’s deputy chief economist, stressed the imperative for accelerated growth in borrowing nations, drawing parallels with personal finance concerns such as high mortgage interest rates. He underscored the challenge of achieving growth rates that outpace borrowing costs, a task that may prove difficult in the current economic landscape.
Recent data from the Institute of International Finance revealed that global debt levels reached a staggering $313 trillion in 2023, with the debt-to-GDP ratio in emerging economies also reaching new peaks, indicating heightened potential risks. The World Bank’s Global Economic Prospects report, published in January, painted a bleak picture of the global economy, projecting the weakest performance in three decades for the period between 2020 and 2024, even without a recession.
Global growth is expected to continue its deceleration, with rates forecasted to reach 2.4% in the near term, still significantly below the average of the previous decade. This slowdown disproportionately affects emerging economies, with many countries yet to recover from the impacts of the COVID-19 pandemic, leaving key development goals in areas such as education, health, and climate spending in jeopardy.
Kose highlighted the looming threat of a Middle East conflict escalation, along with concerns regarding tight monetary policies and sluggish global trade, all of which could further exacerbate economic challenges. He suggested that if growth remains subdued, some emerging economies may need to consider debt restructuring options, such as extending maturities or negotiating with creditors. However, Kose noted that the existing frameworks, including the G20’s Common Framework launched in response to the pandemic, have faced delays and may not offer a swift resolution to debt distress.
In essence, Kose emphasized the critical importance of fostering robust economic growth as a key remedy for addressing the mounting debt burdens faced by emerging economies.
