World Bank: Emerging Markets Face Growing Debt Risks Amid Tariff-Driven Slowdown

Emerging markets and developing countries are grappling with rising debt and sluggish growth as global trade uncertainty spikes, warned World Bank Chief Economist Indermit Gill. Speaking during the IMF and World Bank spring meetings in Washington, Gill emphasized that escalating tariffs, particularly from U.S. President Donald Trump’s recent policies, are intensifying economic pressures.

The International Monetary Fund recently slashed its 2025 global growth forecast to 2.8%, down half a percentage point from January, citing the surge in tariffs by the U.S., China, EU, and others. Gill noted that uncertainty indices have soared, exacerbating an already fragile situation compared to past crises like the 2008 financial collapse or the COVID-19 pandemic. Unlike those events, the current shock stems from policy decisions, meaning it could still be reversed.

Emerging markets have seen foreign direct investment (FDI) fall sharply, from 5% of GDP during peak periods to just 1% today. Net interest payments now consume 12% of emerging market GDP, double the 2014 figure, while poorer countries spend as much as 20% of GDP on debt servicing, squeezing budgets for education and healthcare.

Gill stressed that many countries are at risk of debt distress, particularly if global growth and trade continue to weaken. With inflation keeping interest rates high, rolling over debt could become even costlier.

To counteract these risks, Gill urged developing countries to urgently negotiate lower tariffs with the U.S. and extend reduced rates globally. According to World Bank models, such steps could deliver significant growth boosts and help stabilize vulnerable economies.