World Bank Revises Global Growth Forecast to 2.7% for 2026 Amid Sustained Headwinds

Debt Sustainability and Policy Recommendations

The World Bank's debt sustainability analysis flags that public debt in developing economies has reached 50% of GDP on average — a 10-percentage-point increase from pre-pandemic levels. For many low-income countries, debt service costs now absorb more than 20% of government revenues, crowding out essential spending on health, education, and infrastructure. The Debt Service Suspension Initiative and subsequent G20 Common Framework have provided limited relief, with restructuring processes proving slow and contentious.

The report makes a case for domestic revenue mobilisation as a counterweight to external financing constraints. Countries with VAT-to-GDP ratios below regional peers and limited property tax collection have significant untapped fiscal capacity. The World Bank estimates that developing economies could raise an additional 2–4% of GDP in tax revenues through improved compliance and base broadening, reducing dependence on volatile external capital flows.

On structural reforms, the report emphasises the role of labour market flexibility, competition policy, and financial sector deepening in raising potential growth. It identifies AI adoption in public administration, education, and healthcare as a potential productivity catalyst — but notes that the benefits will accrue disproportionately to countries with strong digital infrastructure and human capital, risking further divergence in the developing world.