The 2020s Are Becoming a Lost Decade for Developing Economies, World Bank Warns

The World Bank's June 2026 Global Economic Prospects report delivered a verdict as blunt as it was alarming: barring a dramatic reversal of fortune, the 2020s are on track to become a lost decade for far too many developing economies. World Bank Group Chief Economist Indermit Gill wrote in the report's foreword that virtually half of all developing economies have failed since 2019 to advance on the most fundamental promise of economic development — narrowing the income gap with the world's most prosperous nations. Global growth is projected to slow to 2.5% in 2026, the lowest rate since the COVID-19 pandemic, with emerging market and developing economies bearing a disproportionate share of the pain from the Middle East conflict's energy price shock. The OECD, in a separate June outlook, warned that under a prolonged disruption scenario in which Gulf energy production remains impaired well into 2027, global growth could slow further to 2.1% in 2026 and just 1.8% in 2027.

The debt dimension of the crisis is particularly acute. The World Bank's debt statistics database shows that developing countries paid out $741 billion more in principal and interest on their external debt than they received in new financing between 2022 and 2024 — the largest financing gap in at least 50 years. The World Bank's June report warned that rising debt is driving up borrowing costs in emerging markets and developing economies, with the relationship between debt and interest rates proving nonlinear: increases in debt-to-GDP ratios generate progressively larger rises in borrowing costs the higher debt already is. Since 2010, rising EMDE debt has been associated with increases in sovereign spreads and domestic-currency yields of approximately 110 and 30 basis points respectively, with advanced-economy debt levels adding further upward pressure on global long-term rates. Countries with prior default histories, low credit ratings or weak governance face even sharper penalties.

The fiscal arithmetic is brutal for the most vulnerable nations. The World Bank noted that fiscal pressures will directly affect the ability of developing governments to reduce poverty, address food insecurity and create jobs. The OECD's Secretary-General Mathias Cormann, in a statement accompanying the OECD's own outlook, argued that any fiscal support provided in response to the energy shock must be targeted and temporary to avoid further accumulating public debt and distorting energy-saving incentives. Low-income countries are projected to grow at 5.4% in 2026, a figure that sounds robust in isolation but represents a 0.3 percentage point downgrade from prior forecasts, with the real per capita income gains estimated at just 2.7% per year in 2026 to 2028 — insufficient to significantly reduce poverty. The recent Ebola outbreak, flagged by the World Bank as a new downside risk to low-income countries, adds another layer of fragility.

The inflationary dimension is compounding the squeeze on ordinary households in the developing world. KPMG's June Global Navigator put global inflation at 4.8% in 2026, while the OECD estimated G20 consumer price inflation would reach 4.0% in 2026 under its more optimistic scenario, with pressures extending beyond energy into food and agricultural inputs following fertiliser shipment disruptions. CEPR research noted that projected per capita income growth across emerging market and developing economies of around 3.1% for 2026 to 2027 sits approximately one percentage point below the 2000–2019 average — a pace insufficient to reverse pandemic income losses or meaningfully reduce poverty. More than one-quarter of emerging market and developing economies remain below their 2019 per capita GDP levels, particularly in low-income countries affected by fragility and conflict.

The World Bank's Gill nonetheless offered a conditional note of optimism: the economic forces gathering for the 2030s — AI-driven productivity, the energy transition and deeper regional integration — are potentially powerful enough to unlock transformative progress. But that future hinges on decisions made now. The OECD's Cormann specifically called on governments to improve the business environment, invest in skills and unlock the productivity benefits of AI and other transformative technologies. The World Bank's own prescription emphasized stronger fiscal positions through revenue mobilisation, more efficient public spending, improved debt management and private-sector investment. Whether the international community can coordinate adequately on debt relief, energy security and trade system reform — while individual central banks fight inflation at home — will determine whether the developing world's lost decade becomes a lost generation.