The World Bank is preparing a $170bn package of financial help in response to the overlapping global crises of war, pandemic and inflation that are hitting the poorest countries particularly hard, its president has said.
David Malpass warned that Russia’s invasion of Ukraine had added to pressures caused by the Covid-19 crisis and soaring cost of living, and there was a need to provide assistance quickly.
Under proposals that will be discussed with the World Bank’s member governments at this week’s spring meeting of the Washington-based organisation, $50bn would be spent over the next three months, with a further $120bn of financing provided over the following year.
“I’m deeply concerned about developing countries,” Malpass told reporters. “They are facing sudden price increases for energy, fertiliser, and food, and the likelihood of interest rate increases. Each one hits them hard.”
The World Bank president said dearer food and energy, higher interest rates, the war in Ukraine and China’s coronavirus-related shutdowns meant the global economy was now expected to grow by 3.2% this year, compared with the 4.1% it had predicted in January.
The Bank’s sister organisation, the International Monetary Fund, will downgrade its growth forecasts when it publishes its half-yearly world economic outlook on Tuesday. In a chapter of the outlook published ahead of its official launch, the IMF expressed concern about a buildup of private debt, which it warned could knock a cumulative 0.9% off growth in advanced countries and 1.3% off growth in developing countries over the next three years.
“People are facing reversals in development for education, health, and gender equality,” Malpass said. “They’re facing reduced commercial activity and trade. Also the debt crises and currency depreciations have a burden that falls heavily on the poor.
“Food crises are bad for everyone, but they are devastating for the poorest and most vulnerable. There are two reasons. First, the world’s poorest countries tend to be food importing countries. Second, that food accounts for at least half of total expenditures in household budgets in low-income countries, so it hits them hardest.”
Malpass said central banks should not rely exclusively on interest rates to tackle inflation. “Central banks need to use more tools under current policies.
“The inequality gap has widened materially, with wealth and income concentrating in narrow segments of the global population. Rate hikes, interest rate hikes, if that’s the primary tool, will actually add to the inequality challenge that the world is facing.”
The World Bank president added: “We’re preparing for a continued crisis response given the multiple crises. Over the next few weeks, we’ll be discussing with our board a new 15-month crisis response envelope of around $170 billion to cover April 2022 through June 2023. We expect to commit around $50 billion of this amount in the next 3 months.”
Both the World Bank and IMF are concerned about the number of countries having problems paying their creditors at a time of slowing growth and rising global interest rates.
Malpass said there needed to be improvements to the common framework – a mechanism for helping countries with their debt burdens – which has been criticised for being too slow and too limited in its scope. “Due to high debt and deficit levels, countries are under severe financial stress”, he said.
