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The World Bank forecasts bigger financial risks for poor countries

Washington, Jun 11 (Prensa Latina) Two fifths of the 35 economies belonging to the group of small States are at high risk of over-indebtedness or are already suffering from it, the World Bank acknowledged on Tuesday.

The phenomenon affects a much larger number of poor countries, but the most alarming situation affects the small ones, whose populations are made up of 1.5 million inhabitants or less.

According to the Bretton Woods institution, these small States “are experiencing chronic fiscal difficulties” and their debt ratios are double those of other developing economies.

Meanwhile, global interest rates are likely to remain at surging levels compared to recent decades, averaging around four percent over the 2025-2026 term, roughly double the 2000-2019 average, the report released on Tuesday by the international entity.

According to the forecast, inflation on a global scale could moderate to 3.5 percent in 2024 and 2.9 percent in 2025, but the pace of decline is slower than what was forecast just six months ago.

As a result, many central banks can be expected to adopt a cautious approach to possible policy rate cuts, the analysis weighs.

Although food and energy prices are showing signs of moderation around the globe, “core inflation remains relatively high and could remain so,” World Bank Outlook Group Director Ayhan Kose said.

This situation could prompt central banks in major advanced economies to delay interest rate cuts.

In an environment of higher rates for longer, global financial conditions would be tighter and growth much weaker in developing economies, Kose deemed.

For the time being, it is clear that public investment growth in developing economies halved after the global financial crisis, declining at an annual average of five percent over the past decade, the study data reflected.

However, such investments could become a powerful policy tool.

For developing economies with broad fiscal space and efficient public spending practices, raising public investment to an amount equivalent to one percent of Gross Domestic Product could increase the level of output by as much as 1.6 percent over the medium term, the World Bank argued.