Income inequality with the richest economies is widening in half of IDA countries
Washington, April 15, 2024—Despite their great potential to drive global prosperity, half of the world's 75 most vulnerable countries are facing widening income disparities with the wealthiest countries for the first time this century. This is revealed in a new World Bank report.. Making the most of the potential of a young population, rich natural resources and abundant solar energy will help overcome difficulties.
report, The Great Reversal: Prospects, Risks and Policies in International Development Union Countriesis the first comprehensive look at the opportunities and risks facing the 75 countries eligible for grants and zero- to low-interest loans from the World Bank's International Development Association (IDA). A quarter of humanity lives in these countries, or 1.9 billion people. With populations aging almost everywhere else, IDA countries stand to enjoy a potentially large “demographic dividend” with an increasing proportion of young workers through 2070. These countries are also rich in natural resources, enjoy high potential for solar energy generation, and boast large mineral deposits that could be important to the world's clean energy transition.
But a historic reversal is underway for them. From 2020 to 2024, average per capita income in half of IDA countries, the largest share since the beginning of this century, grew more slowly than in richer economies. This has widened the income gap between these two groups of countries. One in three IDA countries is poorer on average than on the eve of the COVID-19 pandemic. Extreme poverty rates are more than eight times the average for the rest of the world, with one in four people in IDA countries struggling on less than $2.15 a day. These countries currently account for 90% of the total population facing hunger or malnutrition. Half of these countries are in debt crisis or at high risk of debt crisis. Yet, with the exception of the World Bank Group and other multilateral development donors, foreign financial institutions, including government as well as private creditors, are refraining from lending to them.
“The world cannot turn its back on IDA countries.” Said Indermit Gill, Chief Economist and Senior Vice President, World Bank Group. “The well-being of these countries will always be important to the long-term prospects of global prosperity. Three of the world's largest economies today, China, India, and South Korea, were all former IDA borrowers. Both countries prospered in ways that reduced extreme poverty and improved living standards. With foreign aid, IDA countries today could do the same.”
More than half of IDA member countries (39 countries in total) are located in sub-Saharan Africa. Fourteen of these countries (mainly small island states) are in East Asia and eight are in Latin America and the Caribbean. All countries in South Asia except India are members of IDA. Thirty-one IDA countries have per capita incomes of less than $1,315 per year. Thirty-three countries are fragile and conflict-affected countries.
IDA countries share similar opportunities. One of them is the “demographic dividend,'' or the huge increase in reserves of young workers. Another factor is the abundance of natural resources. These countries account for approximately 20% of the world's tin, copper, and gold production. Additionally, some IDA countries possess important mineral deposits essential to the global energy transition. Because of the abundance of sunlight, most IDA countries are well placed to harness solar energy. On average, the long-term daily solar generation potential is among the highest in the world.
However, this possibility comes with risks that must be managed. To reap the demographic benefits, IDA governments need to undertake policies that improve education and health outcomes and secure jobs for the growing number of young people entering the workforce in the coming decades. . To realize the full potential of their rich natural resources, IDA countries need to improve their policy frameworks and build stronger institutions that can better manage their economies. All of this will require ambitious domestic policy reforms and significant financial support from the international community.
“IDA countries have tremendous potential for strong, sustainable and inclusive growth. To realize this potential, we need to implement an ambitious set of policies centered on investment promotion. right.” Said Kose Ayhan Deputy Chief Economist and Perspectives Group Director, World Bank. “This means advancing a series of structural reforms to improve fiscal, monetary and monetary policy frameworks, strengthen institutions and strengthen human capital. ”
IDA countries have significant investment needs today. The poorest regions will need investments worth nearly 10% of GDP to close existing development and infrastructure gaps and build resilience to climate change. The cost of climate disasters has doubled in IDA countries over the past decade. Economic losses from natural disasters average 1.3% of GDP annually, four times the average for other emerging market and developing countries. To realize these needs, IDA countries need to create a sustained investment boom, the type that increases productivity and incomes and reduces poverty. Historically, such investment booms have often been triggered by comprehensive policy measures such as strengthening fiscal and financial frameworks, strengthening cross-border trade and capital flows, and improving the quality of financial institutions. . The report points out that such reforms are by no means easy. Requires careful ordering and implementation. But previous IDA member countries have shown that it can be done.
Significant international financial support is needed for IDA countries to move forward and reduce the risk of “protracted stagnation,” the report says.. If IDA countries are to avoid a lost decade of development, they must address global policy challenges, including combating climate change, facilitating more timely and effective debt restructuring, and supporting cross-border trade and investment. It is also important to strengthen cooperation in
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