Activist countries

Developing countries face economic headwinds, says World Bank chief

Speaking at Stanford University on Wednesday, David Malpass said the challenges for the developing world are shaped by rising food, fertilizer and energy prices caused by the war in Ukraine, as well as by rising interest rates, currency depreciation and capital outflows, which could result in a lack of funds needed to support people’s lives and economic activities.

“The human consequence of these overlapping crises is catastrophic,” he said.

The World Bank and the International Monetary Fund plan to hold meetings next month in Washington to discuss the global economic downturn and related issues. Finance officials and central bankers around the world are preparing to rally amid high inflation, rising interest rates, growing market turmoil and the effects of Russia’s invasion of Ukraine .

As growth prospects deteriorate sharply for wealthier economies, notably the European Union and China, Mr. Malpass said, developing countries face additional risks: policies adopted by advanced economies to Fighting inflation and economic downturn could leave insufficient capital for poorer nations.

“If current fiscal and monetary policies become the new norm, it implies heavy absorption of global capital by advanced governments, prolonging underinvestment in developing countries and hampering future growth,” he said.

Malpass said underinvestment in the developing world began after the 2008 global financial crisis, with a shift in monetary policies in advanced economies towards zero interest rates and massive bond purchases. These easy-money policies in the United States, Europe and Japan have guided capital to corporations and wealthy people in advanced economies, he said, fueling asset prices there as investment in developing countries stagnated.

“A pressing danger for the developing world is that the sharp slowdown in global growth turns into a global recession,” he said.

The risks of recession are increasing.

Economic activity in Europe fell sharply in September. Britain’s central bank on Wednesday launched emergency purchases of government bonds to stabilize its debt market and avert a pension crisis.

The World Bank on Monday lowered its growth forecast for this year in China, where the economy is grappling with a housing crisis and the government’s zero-tolerance approach to Covid-19.

The war in Ukraine will cost the global economy $2.8 trillion in lost output by the end of next year, the Organization for Economic Co-operation and Development said on Monday.

World Bank economists said in a Sept. 15 report that the global economy is likely to expand 2.9% this year, from 5.7% last year. They expect growth to slow further to 2.4% next year, before picking up to 3% in 2024.

Among the hardest hit countries are emerging and developing market economies that depend on increasingly expensive imported fuels and raw materials. Many were already struggling with deep debts following pandemic-related economic crises and a period of easy money fueled by low interest rates.

Now, slowing growth, rising U.S. interest rates and a stronger U.S. dollar are further compressing those countries, stoking concerns about the possibility of a debt crisis in developing countries. low or middle income.

Yields on emerging market debt have soared in recent months as investors abandon them in favor of assets seen as safer. Dozens of countries, including Sri Lanka, Pakistan, Egypt and Argentina, have turned to the IMF for help, pushing the international financial institution’s outstanding loans to record highs. .

As the IMF and World Bank try to respond to global economic turmoil, Mr Malpass faces his own problem, criticized for his comments on climate change.

Climate activists have called on Mr Malpass to resign over his response last week to questions about whether burning fossil fuels has led to global warming. In a public discussion on climate issues hosted by The New York Times, he declined to respond directly, saying, “I’m not a scientist.”

He has since sought to clarify his position, stating that greenhouse gas emissions cause climate change. Mr. Malpass, a candidate for former President Donald Trump, said he would not resign.

At a general staff meeting at the bank on Tuesday, Mr Malpass apologized for his “poor performance” in the climate discussion, according to a person familiar with the matter. He made similar remarks on Monday during his meeting with the World Bank. Council, says this person.

In his speech on Wednesday, Malpass underscored the World Bank’s active role in tackling the climate crisis, noting that it is the largest funder of climate finance in the developing world and a leader in areas such as climate diagnostics, reducing methane emissions and innovative climate financing.