The outlook for people in developing countries remains grim. The COVID-19 pandemic and related shutdowns are challenging the effectiveness of civil and institutional structures around the world and adding to fragility and violence, resulting in interrelated crises for foreign policy, development, and economics.
Our estimates show that hundreds of millions of families are suffering reversals in development and the most significant economic crisis in almost a century. Indicators of poverty, growth, inequality, nutrition, education, and security are all rapidly deteriorating rather than improving.
Inequality has worsened, both within and across borders, with fiscal and monetary policies exacerbating inequality by favoring the rich while leaving poorer people and countries behind. People on the bottom face shortcomings within their own governmental systems and weaknesses in global institutions. They unfairly bear the brunt of multiple global crises over which they have little control or responsibility.
“We have also increased our contributions to fragile settings from $3.9 billion in FY16 to $15.8 billion in FY21, but good development outcomes cannot be achieved unilaterally.”
Rising inflation and interest rates are hitting the world’s poorest the hardest. The current global system continues to concentrate capital, wealth, and excess government spending in a very narrow segment of advanced economies. This comes at the cost of fewer small businesses, slower growth in median incomes, and further reversals in development.
The misallocation of capital weakens productive investments, job training, and logistics, all of which are vital for dynamic supply chains that counteract inflation and scarcity. Thus, developing countries are not seeing adequate capital inflows, leaving them unable to sufficiently respond to the multitude of challenges they face. In particular, Africa faces underinvestment, insufficient access to electricity and clean water, and regulatory barriers.
Against this backdrop, conflict and violence are driving economic divergence and generating costly cross-border spillovers. The World Bank Group (WBG) estimates that 23 countries – with a combined population of 850 million people – currently face high- or medium-intensity conflict. The number of food insecure people has doubled to 270 million around the world. These trends are all heading in the wrong direction with the number of “conflict countries” more than doubling over the last decade and triggering massive flows of refugees.
With stagnant economies and very young demographics, fragile and conflict-affected situations need to be a much higher global priority. The WBG has been active in fragile settings from our very inception, and we have mobilized significant resources to help them chart a path forward. Over the last four years, we nearly doubled our footprint in fragile locations, reaching over 1,200 staff at present. We have also increased our contributions to fragile settings from $3.9 billion in FY16 to $15.8 billion in FY21, but good development outcomes cannot be achieved unilaterally. While the world risks acting too slowly, inflation, rising interest rates, and staggering debt burdens are having a major negative impact on countries facing fragility, conflict, and violence and straining their finances.
Coordinated international efforts are vital in finding solutions. The delivery of weapons that enter fragile and conflict-affected situations must be stopped and the overhang of firearms and landmines left from previous outbreaks of violence reduced. A reduction in tensions also requires stricter regulation of international security contractors.
Multilateral organizations can make even more significant contributions to security when they have a strong presence on the ground. The governments of fragile, conflict, and violence-affected countries have generally low capacity, so there are clear benefits to continuing in-person engagement to help programs work effectively. Innovations in technology, including digital payments, will also prove to be critical for low-income households and small enterprises in fragile settings.
In this time of upheaval, concerted action is more necessary than ever. Focused international agreements should bolster human and economic development in fragile and conflict-affected situations, providing them with access to affordable medicines and stopping the inundation of war-making weaponry. The macroeconomic response to inflation must avoid taking the developing world into a new phase of economic turbulence. And workable mechanisms should be adopted to restructure the debts of the poorest countries and increase the transparency of their terms.
Developing countries need a viable path to alleviating poverty and boosting shared prosperity to avoid cycles of conflict and violence. The WBG will continue to work to deliver on the ground – working closely with governments, civil society, and the private sector – to reduce poverty and broaden the prosperity of humankind.
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