The World Bank Group has announced its readiness to allocate up to $100 billion to assist countries impacted by the ongoing conflict in the Middle East over the next 15 months. This response comes as the region’s turmoil is anticipated to hinder global economic growth, pushing it to its slowest pace since the COVID-19 pandemic. Contributing factors include rising energy costs, heightened inflation, and increased borrowing expenses, as outlined in the World Bank Group’s recent Global Economic Prospects report.
According to projections, global growth is expected to decline to 2.5% in 2026 from 2.9% in 2025. Economic forecasts for approximately two-thirds of the world’s economies have been revised downward since January of this year. Although a slight recovery to 2.8% is anticipated in 2027, this figure remains 0.4 percentage points lower than the average growth rate observed during the 2010s. The stagnation in growth among developing nations has hindered their progress toward achieving income levels comparable to advanced economies. By 2028, nations classified as developing, excluding China and India, are likely to experience nearly ten years of stagnant per capita income growth in relation to wealthier countries.
Ajay Banga, President of the World Bank Group, remarked, “Developing nations have encountered a range of challenges over the past decade. While the impact varies between countries, the fundamental challenge remains the same: to safeguard citizens and maintain stability now, while continuing to pursue growth and job creation for the future. In light of the current crisis, we are prioritizing liquidity support where it is most needed, and we stand ready to provide additional financing, guarantees, and private-sector solutions should the situation worsen. Our mission is to assist countries in navigating these challenges, advancing necessary reforms, and emerging more resilient.”
The report highlights that the closure of the Strait of Hormuz has led to significant disruptions in energy markets, with Brent crude oil prices projected to average $94 per barrel in 2026—an increase of 36% from 2025 levels, assuming that the most severe disruptions cease by July. Additionally, fertilizer prices are expected to rise sharply this year, which will likely impact food costs. These combined pressures are contributing to an anticipated increase in global inflation, projected to reach 4.0% this year, up from 3.3% in 2025.
However, potential risks loom large. Should energy supply disruptions escalate beyond current expectations, coupled with substantial financial distress, global growth could plummet to a mere 1.3% in 2026, with inflation rising to 4.4%.
This year, growth in developing countries is forecasted to fall to a post-pandemic low of 3.6%, decreasing from 4.4% in 2025, before rebounding to 4.2% in 2027. Economies in the Gulf region directly impacted by the conflict are projected to suffer the most, with growth expected to drop from 3.9% in 2025 to nearly zero in 2026. Nevertheless, these economies are anticipated to recover, reaching around 5% growth by 2027-2028 as trade resumes and reconstruction efforts begin.
The World Bank Group is dedicated to assisting all developing nations as they navigate crises. In response to the Middle Eastern conflict, the organization is making between $50 billion and $60 billion available through various existing financial mechanisms, including $25 billion in pre-arranged funding. This support aims to bolster social safety nets for vulnerable populations, enhance fiscal capabilities, and provide liquidity assistance to businesses and agricultural operations. To date, more than 30 countries are collaborating with the World Bank Group to improve preparedness and facilitate a swift response to the crisis. If the conflict and its economic ramifications continue, the World Bank Group is poised to increase its support to $80 billion to $100 billion over the next 15 months.
In the report, South Asia is projected to achieve the highest growth rate among regions in 2026, although it will still experience a deceleration from 7% in 2025 to 6.3% in 2026. Meanwhile, growth in Sub-Saharan Africa is also expected to slow, with inflationary pressures being felt most acutely through rising food prices linked to fertilizer shortages and price increases.
Ayhan Kose, Deputy Chief Economist and Director of the Prospects Group at the World Bank, emphasized, “While the conflict has adversely affected global economic activity, every crisis also presents an opportunity. This situation should be harnessed to strengthen policy frameworks, invest in infrastructure, accelerate business-friendly reforms, and mobilize private capital to foster large-scale job creation.”
The report also features special chapters that delve into fiscal challenges facing developing economies. Approximately two-thirds of these nations, and nearly 90% of low-income countries, are reliant on commodity exports. However, these economies often maintain weaker fiscal health compared to other developing nations due to their reliance on volatile and less diversified revenue sources. Typically, five years after experiencing a positive commodity price shock, much of the resulting revenue is consumed rather than saved to fortify fiscal positions. To manage commodity price fluctuations, policymakers should adopt robust frameworks, such as well-structured fiscal rules and sovereign wealth funds with clear stabilization goals, in conjunction with improved domestic revenue mobilization and increased economic diversification.
Another chapter addresses the challenges posed by rising debt levels, which complicate countries’ abilities to respond to crises and invest in long-term development objectives, while simultaneously driving up borrowing costs. Since 2010, the total government debt of developing economies has surged from under 40% of GDP to over 70%. The analysis indicates that higher levels of existing debt result in disproportionately higher borrowing costs for additional debt, particularly in more vulnerable nations. For countries with high debt-to-GDP ratios, reducing debt can lead to significant financial benefits, creating greater fiscal space for investments in infrastructure, healthcare, and education, thereby stimulating economic growth and job creation.
