The World Bank has introduced a significant measure to ease the financial burden on low-income and vulnerable nations by eliminating various loan fees.
This initiative aims to provide much-needed relief as these countries grapple with economic challenges and limited resources. The decision reflects the Bank’s commitment to supporting sustainable development and financial stability in the world’s most fragile economies.
This move coincides with projections indicating a 10 percent decline in global commodity prices over the next three years, extending through 2026. Such a downturn could further strain the economies of nations heavily reliant on commodity exports. By waiving loan fees, the World Bank seeks to create a buffer for these countries, enabling them to navigate the anticipated economic pressures more effectively.
The World Bank Group, made public its decision to abolish certain loan fees for its International Bank for Reconstruction and Development (IBRD) loans through its X platform.
The measures, It stated, include eliminating the prepayment premium on IBRD loans, granting a grace period for commitment fees on undisbursed balances, and extending low-cost pricing for small, vulnerable states.* The IBRD is part of the World Bank Group, which is one of the primary arms providing financial support to developing countries worldwide.
The World Bank explained that the fee-related reforms are designed to ease financial pressure on countries in need of development financing. It identified this step as part of its broader strategy to increase its lending capacity by $150 billion over the next 10 years.
IBRD’s equity-to-loans ratio Reforms
The World Bank has also disclosed that the reforms include adjustments to IBRD’s equity-to-loans ratio from 20% to 18%, thereby unlocking $70 billion in additional lending. This will be supplemented by $10 billion from bilateral guarantees and $1 billion from the Asian Infrastructure Investment Bank.
In a related development, the World Bank has also projected that global commodity prices, although higher than pre-pandemic levels, are set to decline by nearly 10 percent between 2024 and 2026.
According to the report, food-price inflation in developing countries will remain double that of advanced economies, indicating that the fall in commodity prices will not provide significant relief for those struggling to afford essential food items.
In its report, titled “2024 Key Development Challenges in Nine Charts: How the World Is Off-Track to Reduce Poverty,” the World Bank noted that, after a series of consecutive shocks over the past few years, the global economy appears to be stabilising. It further observed that despite dire predictions, the world managed to stave off a global recession in 2024.
However, it noted that while advanced economies have largely recovered, developing countries have yet to catch up. Low-income countries risk being left even further behind.
“The world faces a harsh reality: despite decades of progress, ending extreme poverty everywhere by 2030 is out of reach. Amid anemic economic growth, the lasting effects of the COVID-19 pandemic, crushing debt burdens, and rising fragility and conflict, the pace of reducing global poverty has effectively stalled. Devastating climate shocks and extreme weather threaten to slow or reverse progress even more.”*
World Bank Group
“As we close out the year, here are some of the most pressing development issues countries faced in 2024 and how the World Bank Group is working with them to overcome these challenges,” the Bretton Woods institution pointed out.
The World Bank report also indicated that 1.2 billion people worldwide are at risk of life-changing disasters caused by climate-related hazards, such as floods, heatwaves, droughts, or cyclones.
The report revealed that many of these people reside in IDA (International Development Association) countries, where nearly half of the population is vulnerable to climate-related risks.
The World Bank’s 2024 report predicts that global growth will remain relatively stable at 2.6 percent in 2024 before experiencing a slight increase to 2.7 percent in 2025 and 2026. Despite this optimistic outlook, the projected growth remains lower than the pre-pandemic average of 3.1 percent.
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