The World Bank is in discussions with 30 to 40 nations over providing potential crisis assistance, with the Iran war driving up energy prices and piling more misery on the developing nations.
As per World Bank president Ajay Banga, despite the geopolitical disruption, the global economy has remained relatively resilient, supported partly by a boom in artificial intelligence (AI) investments and adjustments in oil supply and demand.
“These factors have so far limited demand for the initial USD 25 billion in crisis financing made available by the World Bank when the conflict began in late February,” Banga told Reuters.
However, rising diesel and fertiliser prices, alongside the threat of a powerful El Niño weather pattern, could intensify the challenges facing vulnerable economies in the coming months.
Speaking ahead of this week’s annual meetings of the International Monetary Fund (IMF) and the World Bank, Banga said more countries could seek financial support if conditions don’t improve.
“There is pressure, and so I think maybe over the coming months, more countries will come for some slice of that first USD 50 to USD 60 billion,” Banga told Reuters, referring to the initial USD 25 billion and another USD 35 billion that nations could access by redirecting resources from previously approved World Bank projects.
“We’ll see, but we’re ready. We’re engaged. We’re having conversations with a number of them; you know, 30 to 40 countries are in dialogue with us,” he added.
The latest energy shock comes at a difficult time for developing economies, many of which are still dealing with the financial consequences of the COVID pandemic and the inflationary pressures that followed the Ukraine war.
Higher energy prices are adding to import bills and domestic inflation, while elevated interest rates are making borrowing pricier.
Governments, be they developed or developing, are battling strained public finances that have limited room to absorb these additional costs without cutting spending elsewhere or seeking external assistance.
Giving its outlook on the global debt burden, World Bank estimates indicate that developing countries owe external creditors approximately USD 400 billion in 2026, with interest payments accounting for about one-third of the total.
Against this backdrop, Banga said the institution could expand its crisis response if the economic situation worsened.
The World Bank could potentially make as much as USD 100 billion available, exceeding the USD 70 billion it disbursed during the pandemic.
For now, however, countries have shown greater interest in restructuring existing World Bank projects to free up resources than in drawing directly on the emergency financing window to meet immediate liquidity needs.
The extent of any additional support will depend on how the energy shock evolves and whether rising costs translate into more severe fiscal and balance-of-payments pressures.
Alongside crisis assistance, the World Bank is seeking to mobilise more private investment to support development as Western governments reduce official bilateral aid.
In September, the institution announced that it had attracted a record USD 112 billion in private capital in the year ended June, compared with USD 69 billion a year earlier and more than three times the 2022 total, before Banga, a former Mastercard chief executive, became the World Bank president.
“The private capital mobilisation was complemented by USD 123 billion invested from the World Bank’s own resources, taking the combined total to USD 235 billion for the year,” Banga said.
The figures underline the institution’s effort to use public financing and guarantees to attract commercial investment into economies and projects that might otherwise struggle to secure funding.
“There is no one answer that fits when the world has these kinds of issues. What you need to do is figure out how to cut your coat to suit your cloth,” the World Bank boss added.
He expects private capital flows to increase further in the coming years, supported by expanded political risk guarantees through the World Bank’s Multilateral Investment Guarantee Agency, greater use of local-currency financing, and regulatory reforms designed to make it easier for foreign investors to participate in developing markets.
The increase in private investment has not been evenly distributed across income groups.
Upper-middle-income countries, including Argentina and India, accounted for USD 50 billion of the private capital mobilised, while lower-middle-income economies, including Bangladesh and Angola, attracted USD 37 billion.
By contrast, private capital flowing into low-income countries remained at approximately USD 3 billion, highlighting the difficulty of attracting commercial investment to smaller and more vulnerable economies.
“In the smaller countries, it hasn’t multiplied enough, and there are challenges,” Banga said.
The World Bank plans to announce new initiatives during the annual meetings aimed at improving access to private financing for micro-, small-, and medium-sized enterprises, which often face greater obstacles in securing investment and affordable credit.
Regionally, Latin America and the Caribbean recorded the largest increase in private capital mobilisation, accounting for USD 36.3 billion of the annual total.
Europe and Central Asia followed with USD 21.3 billion, while Africa attracted USD 22 billion and South Asia received USD 19.2 billion.
The top 10 recipient countries were Brazil, India, Turkey, Romania, Nigeria, Argentina, South Africa, Bangladesh, Mexico, and Chile, according to the World Bank.
The World Bank and the IMF are also working together to address the high debt levels weighing on developing economies, including through initiatives to improve domestic revenue collection.
The global institution has established debt-for-development swaps for Angola and Ivory Coast, alongside a portfolio-based guarantee for Argentina. More than a dozen additional projects are in the pipeline.
“We’ve got 14 or 15 in the pipeline, helping them rotate out higher-priced old debt for newer-priced debt with our guarantees,” Banga said.
Under such arrangements, savings generated by refinancing more expensive debt can be directed toward development priorities, including education, healthcare, water infrastructure, and nature-related programs.