The World Bank said yesterday that developing economies should post their strongest growth in two decades in 2004 as the global recovery firms, but warned that a sudden rise in interest rates may harm the outlook.

In its 2004 Global Development Finance report, the bank urged emerging market policymakers to prepare for a possible rise in international borrowing rates, and to avoid over-exposure to short-term foreign debt.

It said interest rates could rise quickly if current account imbalances, in particular the US trade and budget gaps, were unwound.

The report forecast GNP growth in developing economies at 5.4 per cent in 2004, up from 4.8 per cent last year. This, it said, could slow to about 5 per cent over 2005 and 2006 as the booming economies of east Asia cool.