Wisdom Engraced
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The World Bank has warned that foreign private capital is retreating from developing economies due to rising debt levels and weak growth prospects, and has called for urgent debt reforms to prevent a looming global debt disaster. In a blog post titled “The Looming Global Debt Disaster”, the institution highlighted that total global debt is now nearly 25% higher than it was at the onset of the COVID-19 pandemic.
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“Foreign private capital is unlikely to flow into highly indebted economies with weak growth prospects,” the blog post stated. “Private investors will correctly assume that any gains from economic growth will simply be taxed to pay off the debt
The World Bank noted that many low-income countries are slashing investment in critical sectors like education, healthcare, and infrastructure to service ballooning debts. According to the financier, these countries represent a quarter of the global population and house a large share of the 1.2 billion young people expected to enter the workforce in the next 10 to 15 years.
The institution highlighted that net interest costs have doubled for half of all developing countries, with government interest payments rising from below 5% of revenues in 2007 to about 20% in 2024. This signals a structural crisis in public finance management.
To reverse the trend, the World Bank urged debt-laden governments to prioritize fiscal consolidation and implement trade and investment-friendly reforms. It also proposed setting prudent debt-to-GDP thresholds, 40% for low-income countries and 60% for high-income nations, to prevent future crises.
“The world cannot afford another decade of drift and denial,” the blog warned. The World Bank’s warning comes as Nigeria’s debt owed to the institution totals approximately $17.32 billion, with the country’s overall debt burden continuing to rise.
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Jonathan Nwokpor
