…5.6% growth not enough, says World Bank
Onome Amuge
Developing economies, Nigeria among them, may see moderate growth over the next two years, but the World Bank Group warned on Tuesday that entrenched fiscal pressures and weak investment could derail long-term progress. According to the Bank’s latest Global Economic Prospects report, low-income countries are expected to grow at an average of 5.6 percent in 2026–27, buoyed by domestic demand, a rebound in exports, and easing inflationary pressures
Yet this growth will be insufficient to close the widening income gap between emerging and advanced economies. Per capita income growth in developing nations is projected at 3 per cent in 2026, one percentage point below the 2000–2019 average. At this rate, income per capita in these countries will remain only 12 per cent of that in advanced economies, reflecting persistent structural challenges in translating economic expansion into tangible improvements in living standards.
One of the most urgent issues highlighted by the report is the fragility of public finances in developing economies. Fiscal sustainability has deteriorated in recent years under the weight of overlapping shocks, rising debt-servicing costs, and growing development needs. The World Bank noted that public debt in emerging and developing economies is now at its highest level in more than half a century.
Ayhan Kose, deputy chief economist at the World Bank, stressed the importance of fiscal credibility. “Well-designed fiscal rules can help governments stabilise debt, rebuild policy buffers, and respond more effectively to shocks. But rules alone are not enough: credibility, enforcement, and political commitment ultimately determine whether fiscal rules deliver stability and growth,” he said.
The World Bank noted that fiscal rules consisting of mechanisms that impose limits on borrowing, government spending, or budget deficits, are now in place in more than half of developing economies. Countries adopting such measures have seen improvements in budget balances averaging 1.4 percentage points of GDP over five years, after accounting for business cycle fluctuations and interest payments. Furthermore, the likelihood of sustained multi-year improvements in fiscal health rises by nine percentage points when rules are implemented effectively.
Despite these gains, the report cautions that the long-term effectiveness of fiscal rules depends on institutional strength and policy enforcement. This is as poorly designed or inadequately enforced rules can fail to prevent debt accumulation or provide sufficient fiscal flexibility to respond to shocks.
Investment constraints and the jobs challenge
Beyond fiscal pressures, developing economies face a growing challenge in mobilising private capital to support investment. Weak business environments, policy uncertainty, and limited access to financing are constraining firms’ ability to expand, which in turn hampers job creation and productivity growth.
The World Bank emphasised that developing countries will need a coordinated policy effort across three main pillars to address these constraints. First, strengthening physical, digital, and human capital is critical to raising productivity and employability. Second, improving the business environment by enhancing policy credibility and regulatory certainty can encourage firms to invest and expand. Third, mobilising private capital at scale is essential to finance infrastructure, technology, and business development.
These challenges are made more urgent by demographic pressures. Over the next decade, approximately 1.2 billion young people in developing countries will reach working age. Without sufficient job creation, the demographic dividend could turn into a demographic burden, exacerbating unemployment and inequality. The report stresses that employment growth must shift toward more productive and formal sectors, requiring both policy reform and investment in skills and technology.
While developing economies face structural challenges, the global economy as a whole is proving more resilient than anticipated. Global growth is projected to remain steady, easing slightly to 2.6 per cent in 2026 before rising to 2.7 per cent in 2027. This represents an upward revision from the World Bank’s June forecast, largely due to stronger-than-expected performance in the United States, which accounts for approximately two-thirds of the forecast revision.
Nonetheless, the report warns that the 2020s are on track to be the weakest decade for global growth since the 1960s. Sluggish expansion is widening the gap in living standards across countries. By the end of 2025, nearly all advanced economies had per capita incomes exceeding pre-pandemic levels, whereas about one in four developing economies remained below their 2019 income benchmarks.
Growth in 2025 was supported by temporary increases in trade and rapid adjustments in global supply chains, but these boosts are expected to fade in 2026. Easing financial conditions and fiscal expansions in several large economies are projected to cushion the slowdown, while global inflation is expected to decline to 2.6 per cent in 2026, reflecting weaker labour markets and lower energy costs.
Indermit Gill, chief economist at the World Bank, noted that while the global economy has become more resilient to policy uncertainty, it has simultaneously become less capable of generating robust growth. “Economic dynamism and resilience cannot diverge for long without fracturing public finance and credit markets. Over the coming years, the world economy is set to grow slower than it did in the troubled 1990s, while carrying record levels of public and private debt,” he said.
Gill called for aggressive policy measures to avoid stagnation and unemployment. These include liberalising private investment and trade, reducing unsustainable public consumption, and investing in education and new technologies. For developing economies, restoring fiscal sustainability, strengthening institutions, and implementing credible fiscal rules are central to improving resilience and enabling productive investment.
Medium-term outlook: Risks and opportunities
The World Bank’s analysis indicates that the growth expected in developing economies may not be enough to generate widespread improvements in living standards or to close the global income gap. Structural vulnerabilities, weak institutions, and constrained fiscal space limit governments’ ability to respond effectively to shocks or to mobilise resources for investment.
At the same time, opportunities exist. Strengthening human capital, improving the regulatory environment, and mobilising private investment could accelerate the transition toward more productive and formal employment. Countries that implement credible fiscal rules and maintain political commitment to enforcement stand a better chance of achieving sustained growth and fiscal stability.
The report also highlights the importance of global cooperation and support. It noted that developing economies remain vulnerable to external shocks, including commodity price volatility, climate risks, and geopolitical uncertainty. International financial institutions, multilateral lenders, and private investors are seen to have a role to play in supporting investment, building resilience, and fostering inclusive growth.
