World Bank Calls for Accelerated Growth in Emerging Markets to Tackle Debts

The World Bank pointed out that the rise in borrowing costs is a “game changer” in the need for developing countries to stimulate sluggish economic growth.

This comes as international bond sales from emerging market governments reached an unprecedented level of $47 billion in January, with economies with lower risk debt such as Saudi Arabia, Mexico, and Romania leading the way.

However, some of the riskiest debt issuers have started turning to the markets by offering higher yields. Recently, Kenya issued new international bonds with a yield exceeding ten percent, a rate that experts often consider unsustainable for borrowing.

Ethan Cozzi, Deputy Chief Economist at the World Bank, told Reuters in an interview in London on Tuesday: “When it comes to borrowing, there is a surge happening. There is a need for much faster growth,” but he refrained from commenting on specific countries.

He gave an example by saying, “If I have a mortgage with 10% interest, then I will be worried.”

Kossi added that achieving a faster pace of growth, especially in terms of real growth rate, may prove to be challenging compared to the actual cost of borrowing.

The World Bank mentioned in its report on the global economic outlook, published in January, that the global economy is expected to experience its weakest performance in a five-year period since 30 years ago, even if a recession is avoided. Global growth is forecasted to slow for the third consecutive year to 2.4 percent before rising to 2.7 percent in 2025.

The report indicated that these rates are still much lower than the average of 3.1% recorded in the previous decade.

The slowdown in growth is most severe in emerging economies, with nearly a third of them yet to recover from the COVID-19 pandemic and individual incomes in these economies lower than the levels recorded in 2019. Kose stated, “This raises doubts about many spending goals on education, health, and climate.”

“I believe that achieving these goals will be difficult, if not impossible, given the type of growth we are experiencing.”

The escalating conflict in the Middle East poses another danger, as it increases concerns about tightening monetary policy and impacting global trade.

Kousi said: “Trade is a crucial engine for poverty reduction, and certainly a significant source of revenue for emerging market economies.”

Kousi stated, “If growth remains low, some emerging economies may be forced to restructure debts by adjusting maturities or negotiating debt reductions with creditors.”

He added that sooner or later, you will need to restructure the debt and you must have a framework in place… It did not happen in the way the international community had hoped.

In 2020, the Group of Twenty (G20) launched the “Common Framework” when the pandemic severely impacted the financial situations of countries. The program aims to expedite and simplify the process of debt-ridden countries standing on their feet again, but the process has been hindered by delays, with countries like Zambia remaining in arrears for over three years.

He said, “If growth remains weak and financing conditions remain difficult, there will be no easy way out of this problem. It seems that the solution is a magic wand that boosts growth.” (Reuters)