The World Bank has alerted that developing countries face growing risks from financial fragility created by the COVID-19 crisis and non-transparent debt.
The institution said as rising inflation and higher interest rates pose further challenges to recovery, developing countries need to focus on creating healthier financial sectors.
The forecast is contained in the ‘World Development Report 2022: Finance for an Equitable Recovery’ released on Monday.
The dangers may be hidden because the balance sheets of households, businesses, banks, and governments are tightly interrelated, it highlighted.
The report noted that high levels of non-performing loans and hidden debt impair access to credit, and disproportionately reduce access to finance for low-income households and small businesses.
World Bank Group President David Malpass warned that the economic crisis of inflation and increased interest rates might spread due to vulnerability.
“Tighter global financial conditions and shallow domestic debt markets in many developing countries are crowding out private investment and dampening the recovery.
“It is critical to work toward broad-based access to credit and growth-oriented capital allocation. This would enable smaller and more dynamic firms – and sectors with higher growth potential – to invest and create jobs”, said Malpass.
