The World Bank is engaging with 30 to 40 developing countries to provide crisis aid aimed at mitigating the economic pressures stemming from energy shocks and rising prices linked to the conflict in the Middle East, the institution’s president, Ajay Banga, stated in a recent interview. The ongoing war has contributed to heightened diesel and fertilizer costs, exacerbated by the anticipated impact of the super El Niño weather phenomenon, raising concerns over economic stability in vulnerable nations.
Banga noted that while the global economy has shown resilience, partly due to significant investments in artificial intelligence and adaptations in oil supply and demand, only a limited number of countries initially accessed the World Bank’s $25 billion crisis fund established in late February. Nonetheless, he indicated that mounting challenges could prompt increased demand for assistance, potentially involving up to $50 to $60 billion when considering additional resources that can be reallocated from approved projects.
Many developing economies face compounded difficulties, including elevated borrowing costs driven by high interest rates amid depleted fiscal reserves, which remain strained from COVID-19 response measures and inflation pressures following Russia’s invasion of Ukraine. The World Bank estimates that developing countries will owe $400 billion in external debt by 2026, with interest payments constituting roughly one-third of that amount.
Rather than immediately drawing on new funds, Banga said many countries are prioritizing the restructuring of existing projects. However, if conditions deteriorate further, the World Bank is prepared to expand aid availability up to $100 billion, surpassing the $70 billion disbursed during the pandemic.
In a demonstration of increased financial mobilization, the World Bank revealed it attracted a record $112 billion in private capital during the year ending in June, up from $69 billion the previous year. This inflow, combined with $123 billion from the Bank’s own resources, amounts to a total investment of $235 billion, highlighting efforts to offset reductions in official development aid from Western nations.
Banga emphasized the importance of tailored solutions for diverse economic challenges, noting ongoing initiatives to promote private investment, including enhanced political risk guarantees through the Multilateral Investment Guarantee Agency, growth in local currency financing, and further regulatory reforms to facilitate foreign investor participation.
Private capital gains have been most pronounced in upper-middle-income countries such as Argentina and India, which received $50 billion, and lower-middle-income countries like Bangladesh and Angola, accounting for $37 billion. However, investment in low-income countries remains limited at approximately $3 billion, prompting the Bank to plan new measures to improve access for micro, small, and medium-sized enterprises.
Regionally, Latin America and the Caribbean led with $36.3 billion in private capital investment, followed by Africa with $22 billion, Europe and Central Asia with $21.3 billion, and South Asia with $19.2 billion. The largest recipients included Brazil, India, Turkey, Romania, Nigeria, Argentina, South Africa, Bangladesh, Mexico, and Chile.
Addressing the high debt burdens afflicting many developing countries, the World Bank and International Monetary Fund are collaborating on initiatives to strengthen domestic revenue collection and facilitate debt restructuring. The Bank has already implemented debt-for-development swaps in Angola and Ivory Coast, and a portfolio-based guarantee in Argentina, with over a dozen additional projects in the pipeline. These efforts aim to replace costly older debt with lower-priced alternatives, reallocating savings toward sectors such as education, healthcare, water, and environmental programs.