Emerging markets and developing countries are facing growing challenges as spiking trade uncertainty adds to their already significant debt burdens and sluggish economic growth. Indermit Gill, chief economist at the World Bank, emphasized that cutting tariffs could offer a crucial boost to these economies. According to Gill, economists are rapidly lowering growth forecasts for advanced economies and, to a lesser extent, for developing countries, as a result of a wave of new tariffs announced by U.S. President Donald Trump. The International Monetary Fund and World Bank’s spring meetings in Washington have been dominated by concerns over the economic impact of U.S. tariffs and retaliatory measures from China, the European Union, Canada, and others.
The IMF recently slashed its global economic forecast, projecting growth of 2.8% in 2025, half a percentage point lower than predicted in January. While the World Bank will release its next forecast in June, Gill pointed out that a broad consensus among economists suggests significant downgrades for both global growth and trade. Trade uncertainty indices, already elevated compared to a decade ago, spiked even further following the U.S. tariff announcements on April 2. Unlike past shocks, such as the 2008-2009 global financial crisis or the COVID-19 pandemic, this disruption stems from government policy, meaning it could theoretically be reversed if political decisions change.
Gill warned that emerging markets could see growth slow even further, compounding a decline from approximately 6% growth two decades ago to much lower levels today. Global trade growth, once around 8% in the 2000s, is now expected to barely reach 1.5%. Meanwhile, foreign direct investment in emerging markets has plunged, dropping from 5% of GDP during good times to just 1% today, with portfolio flows also weakening.
Debt distress is becoming a growing threat, with half of the 150 developing and emerging countries either unable to service their debt or at serious risk, double the level from 2024. Net interest payments now account for 12% of GDP in emerging markets, up from 7% in 2014, levels not seen since the 1990s. Poorer countries are even worse off, spending about 20% of GDP on debt servicing, limiting resources for education, healthcare, and development.
Gill advised developing countries to urgently negotiate with the United States to lower their tariffs and extend similar benefits to other trading partners. According to World Bank models, such a move could substantially boost growth and help offset some of the risks posed by the current turbulent trade environment.
READ MORE: