In analytical chapters of its new Global Economic Prospects report, the bank said that the average emerging market country suffering a financial crisis could see potential output fall by 8% over a five-year period, with lost output for developing oil exporters falling 11%.
World Bank officials said that because the growth outlook had already dimmed significantly due in part to trade conflicts, the shock from the pandemic could easily spill over into solvency problems for emerging market countries.
Low interest rates over the past decade contributed to a record increase in sovereign and corporate debt in emerging markets, limiting policymakers’ ability to respond to the crisis and prevent business closures, job losses and deterioration of human capital, said Ceyla Pazarbasioglu, vice president for equitable growth, finance and institutions.
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