A World Bank report has revealed that more than 100 countries, including India, will face substantial challenges in attaining high-income status in the foreseeable future. According to the report, titled *World Development Report 2024: The Middle Income Trap*, India could take nearly 75 years to reach just one-quarter of the US income per capita. In contrast, China is projected to take over 10 years to achieve the same milestone, while Indonesia may need approximately 70 years.
The report evaluates economic progress over the past 50 years, highlighting a common "trap" that countries encounter when their annual GDP per capita reaches about 10 percent of the US level, which is equivalent to $8,000 today. This level situates them among the World Bank's middle-income countries.
As of the end of 2023, 108 countries fall into the middle-income category, with annual GDP per capita ranging between $1,136 and $13,845. These countries, which represent 75 percent of the global population, are home to six billion people and include two out of every three individuals living in extreme poverty.
The report identifies several future challenges that middle-income countries will face, including rapidly aging populations, increasing debt, geopolitical and trade tensions, and the difficulty of advancing economically without harming the environment. It points out that many middle-income countries still rely on outdated policies primarily focused on expanding investment, which is insufficient for sustainable growth.
"Many middle-income countries still use a playbook from the last century, relying mainly on policies designed to expand investment. That is like driving a car just in first gear and trying to make it go faster," the report noted.
Without updating their strategies, most developing countries will struggle to build prosperous societies by mid-century, warned Indermit Gill, Chief Economist of the World Bank Group and Senior Vice President for Development Economics. Gill stressed that the global economic future will largely be determined by the success or failure of middle-income countries.
The report suggests a strategy for achieving high-income status that involves adopting a sequenced and increasingly sophisticated mix of policies tailored to their development stages. Since 1990, only 34 middle-income economies have transitioned to high-income status. More than a third of these economies were either integrated into the European Union or benefited from newly discovered oil reserves, according to the World Bank.
The challenges are multifaceted. Rapidly aging populations in many middle-income countries mean there will be fewer workers to support an increasing number of retirees, potentially straining social safety nets and public finances. Increasing debt levels pose another significant hurdle, as countries may struggle to service their debt while trying to invest in infrastructure and social programs necessary for economic growth. Geopolitical and trade tensions can disrupt markets and create an uncertain environment for investment, further complicating the path to high-income status.
Environmental sustainability is another critical issue. Many middle-income countries have relied on industrial policies that significantly impact the environment. Transitioning to greener economies without sacrificing growth requires innovative policies and substantial investment in new technologies and practices. The report argues that to avoid the middle-income trap, countries need to modernize their economic policies, invest in human capital, and focus on sustainable development practices.
Moreover, the report highlights the importance of governance and institutions in achieving economic prosperity. Effective governance, transparent institutions, and the rule of law are essential for creating a stable environment conducive to economic growth and attracting investment. Countries with weak institutions may find it particularly challenging to implement the necessary reforms and policies.
In conclusion, the World Bank report provides a comprehensive analysis of the hurdles facing middle-income countries on their journey to high-income status. It underscores the need for updated strategies, innovative policies, and a focus on sustainability to overcome these challenges. The success of these nations will not only shape their own futures but also play a crucial role in the global economic landscape, influencing overall prosperity and stability.
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