“We are preparing for an ongoing response, given the multiple crises,” said World Bank president David Malpass.
In the coming weeks, the World Bank Group president said he “plans to discuss with his board a new 15-month package worth about $170bn that will cover April 2022 to June 2023,” adding that the aim is to “commit about $50bn of that amount within the next three months.”
This package is substantial. In 2020, the executive board approved $157bn to address the Covid-19 crisis. This time, efforts will be directed towards tackling food insecurity and the refugee crisis resulting from the war in Ukraine. As many African countries are affected by food security problems, a significant part of the aid is expected to be reserved for them.
The chances of an economic recovery are further diminishing.
The World Bank estimates that “every percentage point increase in food prices will push 10 million people into extreme poverty.” In addition, the threat of debt stress, with debt levels having reached their highest levels in 50 years (about 250% of government revenue), continues to loom over developing countries.
A worrying debt burden
Currently, 60% of low-income countries are in “debt distress” or at “high risk of debt distress.”
“The debt crisis will continue to worsen in 2022,” said Malpass, especially in countries under severe financial stress. “The chances of an economic recovery are further diminishing”, he said in his opening speech at the spring meetings, adding that “even before the Ukraine crisis, the 2022 recovery was already running out of steam due to rising inflation and persistent supply-side bottlenecks.”
As Adama Coulibaly, Côte d’Ivoire’s minister of economy and finance, said during the meetings, “interest rates have risen in response to the need to combat inflationary pressures around the world, and financial conditions have tightened, limiting access to capital markets for emerging countries and frontier markets.”
According to the economist, this situation calls for debt relief to be accelerated, by restructuring and rapidly implementing the G20 Common Framework. “We stress the importance of effectively restructuring countries’ debt under the latter initiative, including by encouraging private-sector creditors to fully participate.”
As a reminder, in 2020, the Paris Club put in place a moratorium on debt-service payments for some African countries. This measure, which was extended until December 2021, did not address the problem.
“The moratorium on debt servicing and the creation of the common debt resolution framework have not provided poor countries with any fiscal space,” said Malpass.
IMF managing director Kristalina Georgieva agreed, saying that these countries “need more aid, as they do not have enough fiscal space” to face the challenges posed by the current crises.
Malpass, a former US under secretary of the treasury for international affairs, called on governments and central banks to “change fiscal, monetary and financial policies that promote the concentration of wealth and income and the misallocation of capital, while fuelling inflation.”
He also proposed a number of policy areas to address, including the efficient allocation of capital, increasing diversified energy production, continuing efforts to ensure security and stability, and opening markets.
Adapting trade policies
In order to overcome the food crisis, the two international financial institutions insist that the countries concerned will have to adapt their trade policies, notably by easing import and export restrictions.
According to Albert Zeufack, the World Bank’s chief economist for Africa, “with limited budgetary leeway, policymakers must turn to innovative options such as lowering or temporarily abolishing import duties on basic foodstuffs to help their fellow citizens”.
According to its Africa’s Pulse 2022 report, the World Bank now expects the continent to grow by 3.6%, down from the 4.1% predicted in January. The report also notes that recovery from the Covid crisis is “uneven, incomplete and unevenly distributed across the region”.
Economic growth in East and Southern Africa is expected to drop to 3.1% in 2022 and be around 3.8% in 2023. In West and Central Africa, the World Bank projects 4.2% growth in 2022 and 4.6% in 2023.
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