Washington D.C Persisting high inflation across the globe coupled with debt concerns are now major impediments to global economic recovery from the aftermath of covid-19 pandemic shocks, the International Monetary Fund (IMF) and World Bank agreed on Monday as they began their 2023 spring meetings in Washington DC.
In the last three years of the two Bretton Woods Institutions’ meeting since the pandemic, the world has experienced uncertainties weighing down the global economy. There have been concerns for the poor and vulnerable as the most affected by inflation, cost of living crisis, and slower growth, coupled with the effects of climate change. The war in Ukraine which continues to disrupt lives and livelihoods around the world has also been a major challenge.
Tackling these challenges will be priority in the discussions in this year’s meetings.
During a joint seminar – infact, the first conversation which heralded the week-long meetings – Kristalina Georgieva, IMF Managing Director and David Malpass, World Bank Group President echoed these very many concerns which they projected would keep global growth weak at below 3 percent this year, and just at 3 percent for the next five years.
The joint conversation between the duo was titled, “The way forward: Building Resilience and Virtual Reshaping Development”.
“We are yet again, assembling our membership at the time of high uncertainty, the recovery we so much are hoping for a robust recovery is still a bit elusive. And this is because we do have a significant inflation problem,” Georgieva noted.
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“This means central banks have to continue to keep interest rates higher to combat it. And that is on the way of restoring the prospects for robust growth. We have seen that this rapid transition from low interest rate, abundant liquidity to higher interest rates and much less available liquidity has exposed vulnerabilities in the financial sector that made the task of policymakers even harder.
“So in that context, what we are projecting for this year is, despite the remarkable resilience of consumer spending in the United States, in Europe, and despite the uplift from China’s reopening, global growth would remain below 3% as we projected it earlier, this year and what is more concerning, is that I t will remain around 3% for the next five years.”
She said these concerns do not give high hope for meeting the aspirations of people, especially the poor around the world, and most importantly, poor people in poor countries.
She explained that three issues in this context would include the fact that the picture of growth is divergent. While some emerging markets that are doing better, for the frontier markets, the poor countries, the future is not so bright. And in terms of income per capita growth, poor countries would remain below income per capita growth in middle income countries. “Dangerous divergence,” Georgieva called it.
The second issue, she stressed is that the world has been wrestling with one crisis after another, one shock after another, which has pushed back the burden of longer term agenda of structural reforms that are paramount to uplifting productivity, thus hampering growth prospects.
Thirdly, she pointed out that the bonds that tie the world together have become even weaker over the last few years as fragmentation deepens, and has generated tremendous impetus for growth and prosperity over the last three decades and an integrated economy is being negatively impacted.
She cited an IMF research which found out that just the cost of trade fragmentation can run as high as 7% of global GDP over the years.
“So these meetings are an opportunity for us not only to talk about the immediate priorities of restoring price stability and safeguarding financial stability, but also about the longer term prospects of growth and how prosperity can be an achievable objective for the low income countries,” the IMF boss stressed.
On his own part, the World Bank Chief, Malpass said the thrust of the Spring Meetings is about the world economy, debt problems facing developing countries, along the overall theme of how to get better outcomes for people around the world and especially for those on the lower end of the income scale – in developing countries, middle income countries and advanced economies that are suffering from lower incomes and cost of climate change.
In terms of the global economic outlook, he said the World bank is equally worried about the slowness of growth now and the prospect that it might stay slow for some time.
“As we look at it, the elements of growth into the future means it’s important that there’ll be more investment, in small businesses and new ones. And that means a flow of capital and a worry that we have for developing countries is the capital inflow.
He corroborated Georgieva’s views that there is actually a divergence, which is gravely concerning as inequality means fragility for more countries.
“The capital flow right now is out of developing countries. So there’s that for many of the developing countries that looks like they are in a phase of Decapitalization rather than recapitalisation. So instead of having convergence, meaning people with lower incomes growing faster than those with higher incomes, convergence toward a higher level is not happening right now.”
He noted that one of the concerns with high prices now, is that it is being applied to food and fertilizer.
He pointed out a concern for the poorest around the world which is that farmers are not able to plant in the face of the inability to source fertilizer. “If they don’t get fertilizer often, they won’t plant for the crop cycle because they know that their yields will be too low. And it is worrying that the fertilizer resources go to the people that can pay the most, that’s a challenge right now.”
He cited a case of global wheat supplies which are at a low level while China has substantial stockpiles, while most of the other countries have drawn down theirs, meaning a period of strain on global food supplies.
On trade fragmentation, he emphasized that trade remains vital to productivity within the world.
For him, people swapping goods in their in their village, within their country and across borders is a way to add value to create more productivity. And to the extent that that breaks down into regional blocks or protectionist blocks, is a concern. “Right now, that’s the direction of travel for the world as it looks to stop the globalization and to reverse it.
“The risk is that it will come out with with unproductive structures, and that also will weigh on world growth,” Malpass added.
