David Malpass World Bank President had a virtual press conference on 2020 IMF/World Bank Annual Meetings. Here are excerpts of the virtual interaction with the press
In his introductory remarks he said “People are working on a number of fronts, and we have upcoming the Development Committee meeting, the IMFC meetings where there’ll be discussion of the economy. As you know, the recession has been deep, one of the deepest since the Great Depression. And for many developing countries, and for the people in the poorest countries, it is truly a depression, a catastrophic event. It is continuing to add to the ranks of those in extreme poverty.
And so that is the focus of our meetings and the focus of our actions. As you know, we did take fast action in April and May to create health crisis programs. We are building as big a growth program for countries as we can in this fiscal year. And just yesterday, I’m pleased to announce, the Board approved the extension of the health emergency programs to up to $12 billion for vaccines and therapeutics and distribution of those in countries that don’t otherwise have access. So we’re making progress on those fronts, and also quite a bit of progress on the debt front, though I do take into account the risk, given the extent of the economic contraction. There is the risk, and a rising risk, of disruptive debt crises in countries as we move through this economic crisis. So that’s got a lot of focus here at the meetings and there’ll be more conversations on that tomorrow and Friday at the meetings of the IMF and the World Bank.
What is the position of the World Bank regarding human capital in Africa and particularly Nigeria? We have an enormous youth population with rising unemployment, and now an added coronavirus concern. Do you see a problem or opportunity?
Well, I see many problems. It’s harder to see the opportunities; this is a bad thing that happened to the world and particularly to poor people in the world because there’s not an evident solution. As I discussed earlier, the K-shaped recovery is a daunting challenge, because of the inequality that is expressed in that kind of outlook. For Nigeria, the vital steps are to strengthen the health system and the education system, and we try to work in those areas. Also, the governance system and transparency are vital in order to reduce the corruption within the system. I compliment Nigeria for tackling the problem of subsidies in the hydrocarbon area. By reducing those subsidies and allowing gasoline prices to rise – it’s very hard for governments to do that — there are substantial benefits. It means that there are fiscal savings. It also means there are environmental benefits that are large, and it also allows markets to work better and to allocate resources better. So, I think progress is being made in that area and it’s valuable.
But the question was on what are the opportunities as well. I think each country has to confront or has to think about where it wants to be in a post-COVID world that’s going to be very different from the pre-COVID world. That means a different way of people interacting, hopefully better; a greener way of operating; and an emphasis on health care. I mentioned earlier that we’ve extended the emergency health response to include vaccines and distribution of vaccines for COVID, but it also has the benefit of helping the vaccination programs in other areas and the healthcare outreach in other areas that will be so valuable.
Earlier this year, the G20 endorsed the debt service suspension initiative to help the poorest countries manage the impacts of the pandemic. Could you comment on how the program is going, the significance of it and your expectations for the G20 on debt relief going forward?.
The moratorium was meant to address right away the fiscal gap that the poorest countries are experiencing. If they continue to make the debt payments, it would have taken away from their health expenditures and their ability to confront the crisis.
The moratorium was very timely starting on May 1, and IMF Managing Director, Kristalina Georgieva and I had encouraged it and proposed it in March. I was very happy that G20 endorsed it. And so there’s been progress, both in terms of the fiscal benefits from the program, also, very importantly, the transparency benefits. Now, this G20 meeting that occurred this morning also made further progress. The G20 has agreed to extend the moratorium for another six months, and that’s welcome. It also strengthened the term sheet. That’s important because it’s important to have as broad a coverage of the creditors in the debt moratorium as possible, and the stronger term sheet will help on that. There has been discussion in the G20 of a debt reduction process.
That’s very important because the poorest countries need light at the end of the tunnel. They need to see a way that in the future there will be less of a debt burden.
The DSSI [Debt Service Suspension Initiative] itself simply defers debt payments and adds interest to them. It doesn’t reduce the amount of debt. It’s important for the people in the poorest countries to see an actual reduction in the amount of debt, a ray of hope for the future. And so I was pleased to see that the G20 was approaching a debt reduction. I think there are more steps that are needed in order to achieve meaningful debt relief for the poorest.
There have been many scripts for the world’s economic recovery post COVID-19. It could be an L shape or a U shape or some might say a Nike swoosh. What would be your prediction for global economic recovery, please.
What we’re seeing so far is sometimes described as a K-shaped recovery. That means that the advanced economies have been able to provide support, especially for their financial markets and for people that have jobs that can be done by working from home. But people that are in the informal economy have lost their jobs, and are depending on social protection programs. For the developing countries, and especially the poorest developing countries, that downward leg in the K, is an increasingly desperate recession or depression that is facing people in the poorest countries because of the loss of jobs, the loss of income, and also the loss of remittances coming from workers, working outside the country. What we’re trying to do at the World Bank is recognise that problem and provide extra support for social protection for the poorest in countries, also recognising the agricultural challenges. We welcome countries that are keeping open their export markets, and also countries that are able to change their subsidy systems in order to allow more food availability within their economies during this very challenging time.
Do you anticipate that IDA will require some kind of additional replenishment due to COVID-19, have you discussed this with the Bank’s shareholders?
We are in the process of examining that, so what I said to the G20 this morning was that the IDA19, which was agreed to in December of 2019, has $82 billion of available resources. We’ve front- loaded that so that more than a third will be committed in the first year of the three-year cycle. And so that will help countries in the immediate, but what we see now is that the crisis is likely to extend longer than a year. What that means is that there will need to be either more resources for IDA or recognise that the amounts available in the second and third year of IDA will be diminished from this first year – the surge year – that we’re in right now. We’ve proposed a $25 billion dollar facility including $10 billion of grants or cash contributions from the IDA shareholders, as a way to smooth the IDA commitment capabilities over the next three years. That will avoid a cliff forming in the IDA process. So, the answer is yes, we will be making that proposal, or that discussion point, both this week, with the governors of the World Bank Group, but also at the IDA deputies meeting later this month.
Which procedures are needed for emerging markets to both continue fighting the pandemic and to contribute to an economic recovery?
The first priority is saving lives, people’s health, and safety. That involves procedures that have been widely discussed of social distancing and masks and proper health care if people contract the virus, strengthening of hospital systems and so on. All of those are important. And then, as we look at the next stage, what I think we can be talking about is that it’s going to be a prolonged downturn for many of the countries, there won’t be as fast a rebound in tourism, for example, as many would like to have. There will need to be flexibility in economies, so that people can move to new jobs and positions, and the country can be prepared for a post COVID global economy. We know it’s going to be different from the pre-COVID economy. We don’t know exactly how and that will only evolve over time. And so, having countries preserve some of their core industries and businesses, and then keeping families together. We’re providing social safety nets to try to help provide cash grants for people, for example, in Brazil, we have a sizeable program. In Jordan, we support Jordan’s sizeable program and elsewhere around the world.
These are all steps that we can do to strengthen the process and create a resilient recovery. Climate and lower carbon rebuilding efforts are a very important part of that. I spoke a week ago in Frankfurt on the importance of that process and gave some details.
The Annual Meetings are being held in a context of the COVID-19 crisis, which has impacted social and economic standards. What has the Bank’s response been to the crisis, in general, and in countries like Niger? What will change in your approach to boost growth and development?
For fragile countries, the points that I just mentioned apply. That means the health crisis has to be particularly addressed, and then a process for rebuilding in a way that can be different, and stronger and greener in the future. All of those are important for fragile countries. I spoke a week ago on a conference that was particularly aimed at those fragile states. Security in Niger is a core challenge. The security issues are very important, a large chunk of their fiscal resources go to security efforts. And so, the world can look to try to help support the stability of the social fabric in those countries. We work very closely with UN agencies on that. We can’t directly support security efforts, but what we can do is work to support the governance structures that strengthen government capacities, which can help with healthcare, with education, and with all the social growth that’s needed for these societies. We work very heavily to support women and girls as part of an economy. It’s vital for these fragile states to recognise that women and girls make up half of their society, and oftentimes, a very productive half of the economy and need to be fully included in the legal structure and in the social fabric of the economies. We work extensively in that area.
How do you see the economic performance of Latin America and Ecuador specifically, and how will the Bank accompany the region from the point of view of financial support?
Ecuador faced a very hard situation in that there would have been a huge buildup of debt in previous years. And they’ve made progress on that, by restructuring it, though they’ve restructured the private sector to commercial claim, but some of the big creditors were not restructured in that process. So, it leaves sizeable payments still having to be supported.
Ecuador has worked closely with the World Bank and with the IMF on strengthening the economic program and I think they’re making good progress in that area. And the challenge here is that it takes time to repair the damage from the past. That time is very challenging for people because they’re confronted not only by the economic situation leftover from the past, but the new challenges presented by COVID and by the loss of some of the export markets. So, we’re working to provide as much support as we can for Ecuador, for the people of Ecuador, as they work through this process, and look to a brighter future. I want to emphasise the challenge faced by debt that had built up in previous years that still needs to be rescheduled and restructured. And I think in the end, some of that debt also needs to be reduced, which is a process that I think will be helpful in the resilience of the recovery.
Governments are being urged to step up public investment in infrastructure especially. Will that be enough and how far will the bank be stepping up infrastructure investment from here out?
We are encouraging spending in the first instance on health programs, on social programs, and on education. A critical step for countries is to reopen schools. We think there are as many as a billion children still out of school in the developing world. And in those cases, learning goes backward, which has a huge future cost for countries. This is particularly true for girls that are left out at a critical point in their lives, left out of school. That’s a high priority. Now, looking longer term, you are right, infrastructure is a very important part of a country’s growth. We have a large undertaking through the IFC that works on infrastructure that helps provide electricity and low carbon ways, for example, that helps provide clean water, that helps provide global public goods, meaning helping the country reach a balance with the environment and with the climate that benefits themselves and their neighbours. All of those are key priorities. Now, speaking directly on infrastructure, one of the challenges is we have a very low interest rate environment, and it should be an environment that provides much more infrastructure investment than is currently occurring. A key step in this is the documentation and the standardisation of the quality of the infrastructure projects. It’s vital that the world move toward a financing structure where multiple infrastructure projects can be pooled in order to reduce the risk to the entire package, and that’s difficult right now because of the difference in the contracts. So, one of the things we’ve wanted to do is try to help standardise some of the contracting and make it much more transparent. This will help the infrastructure build up.
With evidence of climate change all around us, will the World Bank set targets to increase climate finance and reduce fossil fuel financing?
Well, we have very ambitious targets for increasing climate financing. The World Bank is the largest multilateral funder of climate-related financing. Over the last five years some $83 billion of financing. And the most recent fiscal year that ended June 30, my first full year as president of the World Bank, was the largest year of World Bank commitments in the area of climate. And going forward, we want to step up those efforts. One of the ways we do that is the percentage of our commitments that have climate benefits. I think the achievement in the most recent fiscal year was 32%. And that’s an ambitious target for the future as well. Part of this, as I mentioned in my speeches last week, is the very high importance to the world of having electricity generation be done in a lower carbon way. One of the problems the world faces is that a great deal of electricity currently is being made from high carbon sources, and many of the projected sources of electricity generation are expected to be high carbon because of the new generation capacity that’s in the planning stages in many countries, both developed countries and developing countries. I encourage world leaders to really focus on lower carbon energy electricity generation as a priority within the climate space and activities.
What can be done during this recovery period to strengthen improve global trade as it relates to global GDP?
A very beneficial step is trade facilitation, and that means trying to keep markets open across borders and, where markets are closed, lowering the barriers that occur. So, for example, between Benin and Nigeria, there are high tariff barriers on rice, which is distortive and expensive, so finding steps that can be done to facilitate cross border trade and to allow commerce to take place. That means a safe environment, that means one that is available to all people, that’s not discriminatory in terms of the way it operates. And I think looking more broadly, it’s the commitment by countries around the world, a recognition that commerce is critical to people’s rising living standards. We strongly support moves worldwide to allow more trade and to reduce the barriers to trade.
Back to the first question. A big challenge now facing the G20 is how to make the common framework for debt very effective for the people in the poorest countries. That means a debt reduction process that will be meaningful and allow durable growth into the future. Thank you.