(Commonwealth) In the first of a two-part pre-analysis for the Commonwealth Finance Ministers Meeting in Washington on October 13, 2025, Commonwealth Secretariat Director of Economic Policy and Small States, Dr. Thomas Munthali, outlines the opportunities and challenges for member states against an uneasy international backdrop.
The international economy is yet to fully recover from the COVID-19 pandemic. The discussion will continue. Just as the world was recovering, new incidents of economic and geopolitical shocks are beginning to emerge, and they are likely to roll back advances once again. All but a few Commonwealth nations, especially those already susceptible to external headwinds, face heightened risks. The escalation of trade tensions, declining aid flows, tightening financial conditions, and rising debt burdens all represent downside risks to development and growth. At the same time, the compounding pressures of global warming and repeated natural disasters continue to erode fiscal strength, especially in small and exposed states, which form 33 of the 56 members of the Commonwealth.
Among these emergent pressures are emergent opportunities. In this age of uncertainty, there is the possibility of change, cooperation, and innovation. Well-tapped, the collective resilience and shared values of the Commonwealth can chart a course of sustainable economic stability and inclusive growth.
The Challenge
The global economic recovery, which initially showed promise, is now slowing down. Following a robust rebound from -3.1 percent in 2020 to 6.3 percent in 2022, global growth is likely to slow sharply. Policy uncertainty, increasing inflationary pressures, and fragmentation of the geopolitical landscape have led the 2025 world growth forecast to be lowered to 3.7 percent from 3.1 percent. Experts have warned that escalating trade tensions, further tariffs, and political fragmentation can shave as much as 1 percent off the global GDP by 2027. One World Economic Forum scenario puts this kind of fragmentation at wiping out $5.7 trillion, 5 percent of world GDP, within two years, a bigger shock than the financial crisis of 2008 or the COVID-19 pandemic. These issues are particularly sharp for the member states of the Commonwealth.
Although the Commonwealth holds a 21 percent trade surplus, most members remain highly reliant on trade with big economies such as the United States, Europe, and China. This reliance leaves them exposed to global market weaknesses. Aid dependence also raises the risk, especially in Small Island Developing States (SIDS), where 26 percent of all financing is covered by foreign aid compared to only 1 percent among comparators outside the Commonwealth. But aid flows are declining as traditional donors like the US, France, and the UK are mapping cuts, even as developing countries’ financing needs keep rising. Public debt has also emerged as a pressing concern. Across the Commonwealth, successive external shocks, natural calamities, and unpredictable financial conditions have pushed borrowing to unsustainable levels. Eight of our member states will have more than 100 percent of GDP in 2025, and another 24 are between 60 and 100 percent. More elevated interest rates and risk perceptions also threaten fiscal sustainability further, crowding out investment in core public services and long-term development priorities.
The Impacts
The Commonwealth experiences the spillover impacts of these changes asymmetrically on a global scale. International trade, one of the drivers of growth, comes increasingly under strain. The World Trade Organization has cut back its 2025 forecast from 3 percent growth to a 0.2 percent contraction, blaming the result on soft demand and residual trade barriers. The biggest risks to economic stability are reduced export earnings and job losses, particularly affecting small and open economies.
Each member have extremely varied economic prospects. Canada and Nigeria have benefited moderately from the easing of financial tariffs and higher commodity prices, but trade-exposed economies such as Malaysia and Singapore have weaker prospects due to reduced investment and financial market instability.
Fiscal pressures are mounting.
Small, already highly indebted nations are seeing their budget deficits rise further, with little room for development or social spending. The recently implemented 1 percent levy on US remittances, which will take effect from 2026, will probably lead to household incomes falling even more in the remittance-dependent economies of Tonga, Samoa, and Jamaica. Foreign direct investment in the new economies remains less than half of what it was in 2008 and is eroding prospects for growth in South Africa and Nigeria. Commonwealth central banks are increasingly under pressure. External finance becomes pricier, and underdeveloped domestic debt markets limit fiscal space. Shallow markets and illiquid secondary markets for government debt make it difficult to borrow from domestic sources, which leaves the financial system exposed.
