“A serious conversation will be needed between developed and developing countries, between rich and emerging economies, between North and South, East and West. These efforts will require reforming institutions that were built by a bygone world, for a bygone age”.  

Antonio Guterres 

Priorities for 2024 at the UN General Assembly 

February 7, 2024

Global economic outlook: Moving beyond global averages

Slow growth, high interest rates and debt vulnerabilities continue to shape the global economic outlook. There is both a ‘soft landing’ narrative for advanced economies and a ‘non-soft landing’ scenario for developing and emerging economies. In addition, policymakers are starting to diverge in their responses to different moments in the macroeconomic cycle. Data points, that look beyond global averages, highlight risks and vulnerabilities that impair a robust recovery: 

• Over the past decade, public debt as a percentage of GDP has risen more than 16 percentage points for the median developing economy, bringing debt back to levels last seen in the early 2000s. Over roughly the same period, the share of private creditors in public external debt has risen from 41 to 63 percent.

• As a share of revenue, net-interest payments have almost doubled over the last decade for the median developing economy, - and has in the poorest region Sub-Saharan Africa now reached almost 10 percent up from 3.5 percent a decade ago. 

• In total, 48 developing economies spend more than 10 percent of government revenue on making net-interest payments up from 28 countries a decade ago, - and for 10 countries interest payments consume more than one quarter of total revenue. 

• Debt servicing on public external debt is also back at record levels in many countries. In 2023, total external debt servicing was estimated to be higher than 20 percent of revenue in 25 countries and this year in 24 countries, - a number of countries not seen this high since the year 2000.   

• Especially worrying this and next year are high external debt service payments in the poorest countries. After a little respite in 2022, external public debt servicing for the group is expected to peak this year at $175 billion, - a more than 50 percent increase from 2022 – of which $126 billion are principal payments.

• While global financial market conditions have eased over the past 6 months, thereby also re-establishing market access for some countries, the group of developing economies with relatively lower credit ratings pay a high price for raising new, or refinancing existing, debt. As an example, the average yield on hard currency sovereign bonds for African issuers is still about 250 basis points higher than before COVID. 

• In total, more than half of developing economies with a credit rating are considered below ‘non-investment grade’, and more than half of the poorest countries with debt sustainability assessed under the LIC-DSF methodology are rated either in or at high risk of debt distress.

The consequences of slow growth, high interest rates and debt servicing rates continue to impact developing and emerging economies.

• The World Bank estimates that in IDA-eligible countries on average, total (domestic plus external) debt servicing in 2024 will be higher than the combined public spending on health, education and infrastructure.

• UNDP has estimated that the average low-income country spends 2.3 times more on servicing net-interest payments than on social assistance, 1.4 times more than on domestic health expenditures or 60 percent of what it spends on education.

• UN’s Global Crisis Response Group (GCRG) has estimated that in total, 48 countries are home to 3.3 billion people whose lives are directly affected by underinvestment in education or health due to large interest payments.

Support for the WBG’ work: From Vision to Impact

The UN development system welcomes the strategic playbook outlined in “From Vision to Impact: Implementing the World Bank Group Evolution”. The evolution towards a bigger and better World Bank allows more ambition for sustainable development and climate financing. 

The key issues flagged in the report are:

• IDA replenishment: The UN development system strongly supports a historic IDA21 replenishment. IDA21 will heighten focus on outcomes in line with the World Bank Group Scorecard, and benefit from improved transparency and accountability that the Scorecard as a strategic management and communication tool provides. IDA21 will complement its enhanced outcome orientation with a ‘SimplifIDA’ initiative, which, by streamlining IDA architecture and processes, will support speed and impact in the delivery of development solutions in a manner that does not increase environmental and social risks, or reduce quality outcomes. 

• Private capital mobilization: The World Bank is moving ahead with strong proposals to simplify access to guarantees; develop solutions for foreign exchange risk mitigation, including solutions to increase local currency financing, especially for the green transition, and scale an originate-to-distribute model aimed at attracting institutional investors.

Partnerships will be essential and improved coordination across the multilateral system should be a particular area of focus, both for knowledge and co-financing. The United Nations and the WBG should continue to enhance knowledge sharing and data on global public goods and expand and deepen its strategic partnership framework for the 2030 agenda at global, regional and country level in policy development and advocacy, joint analysis and assessments, program planning and implementation, and financial support for development. 

Next Steps

The United Nations will continue to support MDB reform, in line with the actions outlined in the Secretary General’s SDG Stimulus Plan. We propose three specific actions:

• Help sustain net positive flows to developing and emerging economies: The World Bank plays a critical role in channeling IDA to the poorest and most vulnerable economies and expanding the envelope of concessional and non-concessional financing to developing and emerging economies through IBRD, MIGA and IFC. Recent overall capital flows have been unfavourable for many developing economies. MDB resources will be a strategic resource during this period.

• Help lead on additionality for climate and development financing: There are limits to what MDBs can achieve without capital increases. The UN development system has consistently called for capital increases for the World Bank Group to leverage markets and expand financing available to developing and emerging economies as a core part of the “bigger bank” roadmap. The discussion on additionality will continue to be on the agendas of the Summit of the Future, COP29 and the 4th International Conference on Finance for Development.