Debt, Inflation, and Trade Shocks Stall Recovery in Developing World: World Bank

The 2025 Macro Poverty Outlook, jointly authored by the World Bank’s Poverty and Economic Policy Global Departments, presents a wide-angle lens on the world’s developing economies. With a data cut-off of April 10, the report is the most comprehensive source of country-by-country growth diagnostics and projections. At its core lies a dual narrative, one of tentative recovery from the pandemic’s shadows, and another of mounting risks from inflation, debt, climate vulnerability, and global trade fragmentation. The report underscores that while macroeconomic stability has returned in several economies, the recovery remains uneven, incomplete, and vulnerable to external and domestic shocks. In more than 140 developing nations, progress in reducing poverty is back on track, but only just.

East Asia: Growth Faces Structural Speed Bumps

In East Asia and the Pacific, powerhouse China is projected to grow at 4.0 percent in 2025, marking a slowdown from 2024's 5.0 percent. The country's faltering property sector and weakening exports are partially cushioned by targeted fiscal spending and state-driven investment. However, poverty reduction, while ongoing, is slowing, especially among urban low-income groups. By the World Bank’s upper-middle-income poverty line of $6.85/day, nearly 10.5 percent of China’s population is expected to remain below the threshold in 2025.

Indonesia remains a regional bright spot with 5 percent growth, underpinned by consumer spending and strategic investments. However, productivity growth continues to lag, and middle-class job creation has failed to keep pace with economic expansion. Reforms to deepen financial markets, increase tax efficiency, and improve labor flexibility are key to delivering on the government’s ambition of reaching high-income status by 2045.

Malaysia, meanwhile, maintains strong consumption-led growth but faces a narrowing fiscal path. Inequality persists, with the top 20 percent holding 41 percent of total income. Although the poverty rate has dropped to around 1 percent, the government’s challenge lies in unlocking upward mobility for the bottom 40 percent. Countries like Fiji, Mongolia, and Cambodia have posted moderate to strong growth, but face risks ranging from inflation to commodity price shocks and narrow export bases. The small island states, Kiribati, Tuvalu, and Nauru, lean heavily on sovereign wealth funds and are exposed to volatile revenues from fishing licenses and aid inflows.

South Asia: Growth with Fragility

In South Asia, India (not detailed in this excerpt) remains a driver of regional momentum, though the broader story is one of fragility. Myanmar faces a deeply troubling economic environment, with a 1 percent GDP contraction in FY2024/25 amid natural disasters, civil conflict, currency depreciation, and surging inflation. A March 2025 earthquake worsened the crisis, displacing thousands and damaging key infrastructure. Poverty has spiked to 32 percent, undoing years of progress.

By contrast, Mongolia is riding a mining boom, with a projected 6.3 percent growth in 2025 fueled by copper production at Oyu Tolgoi. Inflationary pressures from electricity tariff hikes are a concern, but the country’s fiscal position has improved. Poverty is expected to decline modestly to 19.2 percent in 2025.

Africa and the Middle East: Caught Between Promise and Peril

Across Sub-Saharan Africa, growth is fragile and often insufficient to improve real incomes. High food prices, climate shocks, and weak fiscal positions have kept poverty rates stubbornly high in many countries. Nigeria, for example, continues to wrestle with subsidy reform and revenue challenges. South Africa faces persistent inequality and weak investment due to structural bottlenecks. There are pockets of resilience, Rwanda, Kenya, and Ghana, where investments in agriculture and digital infrastructure are helping drive inclusive growth.

In the Middle East and North Africa, oil-exporting economies like Saudi Arabia and Qatar benefit from elevated energy prices but face urgent needs to diversify. Countries such as Egypt, Lebanon, and Tunisia remain under heavy fiscal pressure, with inflation undermining household consumption and mounting debt service obligations squeezing public services. The need for subsidy reform, job creation, and social protection is critical to avoid further social strain.

Latin America and Europe: Slowdown Amid Debt and Trade Shocks

In Latin America and the Caribbean, post-pandemic recovery has been hampered by inflation and declining commodity exports. Brazil and Mexico face sluggish growth in 2025, with fiscal consolidation efforts constrained by political tensions and high inequality. Smaller countries like Peru, Paraguay, and El Salvador are tackling structural reforms, but weak investment and limited social spending hold back progress.

In Eastern Europe and Central Asia, the Russia-Ukraine war continues to dominate the economic narrative. Ukraine struggles under the weight of war-related destruction and reconstruction needs, while Russia faces sanctions-related headwinds. Peripheral economies such as Armenia, Georgia, and Kazakhstan are navigating redirected trade flows and fluctuating investment streams, offering both opportunity and exposure to risk.

A Fragile Future Hinges on Reforms

While some economies have regained their footing, the World Bank warns that this recovery remains “fragile by design.” A convergence of global trade policy uncertainty, inflation, debt, and climate threats could easily derail progress. Public debt is rising in many nations, and several are already at high risk of debt distress. Across all regions, inequality persists, often hidden beneath surface-level growth metrics.

To secure long-term development gains, the report calls for bold reforms: expanding tax bases, improving governance, accelerating climate resilience programs, and investing in human capital. Strengthening fiscal frameworks and protecting social spending are critical to shielding the poor from the next crisis, be it financial, climate-induced, or geopolitical. Without such action, much of the progress since the pandemic could prove temporary, leaving developing countries vulnerable once again to the winds of global instability.