Inclusive Growth: The Key to a Lasting Recovery

[Paul Blake]

Good afternoon everyone. Welcome to the atrium of the World Bank Group headquarters here in Washington, D. C. Welcome to everyone joining us here in person, as well as everyone joining us online. My name is Paul Blake. I'll be your guide over the next hour as we discuss economic growth, its impact on poverty, as well as what can be done to strengthen the outlook for a lasting economic recovery. First, a bit of context. COVID-19 ended this remarkable period of about 25 years, when rapid economic growth saw the incomes of the poorest countries converge with those of the wealthiest countries. During this time, the world came within striking distance of ending extreme poverty. Today though, the world is massively off track. And that's a problem because the chances of ending extreme poverty by the end of the decade is one of the key goals and it's also a prerequisite for all other development outcomes. The World Bank's latest estimates show that by the end of 2022, as many as 685,000,000 people will still be living in extreme poverty. And the global growth outlook meanwhile, is tepid held back by the invasion of Ukraine, as well as rapid inflation and high levels of death.

[Paul Blake]

This could leave as many as 600 million people still suffering in extreme poverty by the end of the decade. So this is the situation that the world finds itself in today, and it leads us to ask, what can be done to correct course? That's the overarching question we'll be hoping to answer today with a number of distinguished guests. Here's a look ahead of what's coming up. So, as you can see, we're in for some very interesting discussions as we explore what can be done to help the poorest, boost long-term prospects for an inclusive global economic recovery and resume progress towards poverty goals. Remember, you can share your thoughts throughout this event and throughout the week by following the World Bank Group on Twitter, Instagram, Facebook, or LinkedIn using the hashtag #Growth4All. Now our first discussion will examine in-depth how the outlook for inflation and interest rates, debts and growth all intersect. And we're joined now by World Bank President David Malpass, alongside Dr. Larry Summers, professor and president emeritus of Harvard University, as well as former US. Treasury Secretary. And I think we're very proud of the World Bank, to say former vice president of development economics and chief economist David, over to you.

[David Malpass]

Okay, thanks very much Paul, and hi everybody in the audience. And. Hello, Larry. I'm very pleased you could join today. We're going to have a really engaging conversation as we just heard, and as everyone knows, Larry was US. Treasury Secretary, he was President of Harvard University and also is a prolific economic thinker and policymaker and writer. So it's great you could be here. We heard this gloomy starting point. My worry is that we may be heading into a world recession and it could be persistent, meaning one of the big challenges we have to face. Is it going to be better two years from now? And we hope it will from a cyclical standpoint. But Larry, I wanted to get your view on just the general outlook and then maybe we can bring it to monetary and fiscal policy and then also talk about the role of the World Bank. But how do you see it? Are you as gloomy as everyone? And where are we headed?

[Larry Summers]

I think we've got a very challenging configuration combination of excessive inflation in the United States, which requires a policy response. The interest rates, currency levels that go with that, along with everything associated with COVID and the Ukraine war, means that I suspect the next couple of years are not going to be easy. I think the best prospect for sustained growth or ultimate poverty reduction runs through a very determined effort to reduce inflation. And so I'm glad that at last the Fed has set such a path. I hope that coming out of the Fund Bank meetings this week the Bank and the Fund will underscore the importance for developing countries of strong policies in the industrialized world of making sure that there's a substantial level of resource transfer and new lending to countries that are caught up in these difficulties. That there's a clear recognition of sustainability as a central vehicle for promoting growth and resource transfer. That there's an awareness that there are a set of debt issues which the existing architecture deals with in only very slow and halting ways. You know, the previous moments of economic crisis were major moments of multilateral action.

[Larry Summers]

Think, for example, of the London summit during the financial crisis. And I hope we're going to see strong actions in which institutions like the Bank and the Fund can and should play a leading role coming out of these meetings.

[David Malpass]

Okay, that'll make sense. And let's come back to that in there was the Plaza Accord and the Louvre Accord as exchange rates were moving in those days. So in some ways the global crises intersect with monetary policy and fiscal policy. So I want to drill down just for a minute on monetary policy. And you're thinking, let's say the central banks were able to catch up to the curve as far as the interest rate hikes. They're still working to reduce their bond holdings. You said in 2021 that you weren't sure QE —You may have said it more strongly, as you often do— that QE didn't make sense. Where do you see— What kind of monetary policy should the advanced economies have next year and the following year in the sense of bond holdings and in the sense of the size of their balance sheets?

[Larry Summers]

I think the overarching priority for now has to be on disinflation. I think in general, reversing the big build-up in balance sheets is also a good idea. There's something bizarre about the fact that at a moment last year what the whole world was turning out was debt. The world central banks, led by the United States, were terming in their debt by retiring long-term debt and issuing reserves which were in effect floating rate notes. And I think it would be desirable to reverse that. At the same time, I think that we are in a moment of very great volatility in many markets. We are in a moment when I've heard more and more concerns about illiquidity and possible accidents in markets, David. And so I think the pace of QT needs to be measured with what the financial system can handle. And I think the actions that given the many, frankly, mistakes that had been made, I think the Bank of England's recognition that it was going to need to be a kind of market maker of last resort was an appropriate one. And I rather suspect that that's going to need to continue past this Friday if stability is to be maintained.

[Larry Summers]

And I would be surprised if the Bank of England was the last central bank that was going to need to engage in financial stability operations in the next year or so. But my hope would be that we could maintain momentum around disinflation and at the same time do what's necessary for financial stability rather than compromise the disinflation objective because of some kind of financial stability concern. My worry if we compromise the disinflation objective is that it will be that much more painful down the road, that the actions needed will be that much more sudden and the collateral consequences for unemployment, for financial stability and greatest moral significance for poverty will be much greater.

[David Malpass]

Yeah, this is clear. The central banks are saying we've got to get the job done because otherwise the other side isn't good. So disinflation is still the source. I thought that more production, in other words, as you think about what will help with inflation, part of it is what the central banks do and part of it is also how does the world come together to have a lot more production to bring down prices of all kinds of goods? We're working with lots of countries on the ways they can have their own programs stronger. But as we think about this from the fiscal side, I want to bring that side of it in. One of the concerns I've had is that the advanced economies are taking up a big chunk of the world's capital through national debts and also as the central banks are buying just a certain class of bonds, the bonds of the advanced economies. And so there's this inherent bias in the system away from development. So I wonder your thoughts on how do we get back to a stage where capital can flow from the savers in the advanced world or worldwide savers into development and more investment in development.

[David Malpass]

And then I'll take us to resources of the World Bank. But we've got this giant global pile of savings that needs to be mobilized more broadly around the world. That's my view. Thoughts?

[Larry Summers]

So much of that has to do with performing the relevant intermediation, which is of course the ultimate mission of international financial institutions. And we'll come to that in a moment. But I think you are right that we need to make sure that over time there is a reasonable degree of fiscal responsibility in the industrial world that goes to many different issues. It goes to the adequacy of revenue collection. It goes to spending where spending is needed and you need not to spend where spending is not needed. I think, for example, in the United States we can do much more to contain health care costs, the kinds of things that were done in the recent legislation addressing pharmaceutical prices. We could do much more to collect tax revenues. We had a major investment in what the World Bank would call strengthening institutional capacity in the funding of the IRS. And I think those were right and appropriate kinds of investments. I think there are similar challenges in many different industrial countries. But I agree with you that holding industrial country debt is a kind of sterile use of savings and that we should want to promote its flow.

[Larry Summers]

I think there's a large enough pool of savings that the central issues for developing countries have less to do with the size of that pool of savings than they do with the quality of intermediation which goes back to the role of the international financial institution.

[David Malpass]

Yeah, finding effective ways to derisk or to move capital. But you made an important point there that the quality of spending is critical. I was with Kristalina this morning and also yesterday and you were making the very good point that out of our annual meetings we want some themes to come through in this macro area. And I think there are two that are very clear. One is that the fiscal policies match somewhat the monetary policies in this disinflation exercise that we’re under. Kristalina was making that point strongly this morning. And then we also are making the point that keeping that market openness, or I'll be more specific, that avoiding export barriers and import barriers and subsidies that are untargeted is a major theme of World Bank and IMF and WTO, the international community in general. And both of those points, the efficiency of spending and the market orientation of the trade environment applies to developing countries as well. I mean, that's a core direction for the world to try to preserve things that are working and make them better.

[Larry Summers]

Not I'm very much with you on avoiding a return to protectionism, avoiding a variety of kinds of restrictions. I think that it's appropriate that countries everywhere focus on issues of resilience. That is, we're pointed up by the Pandemic. And I think part of the reason, part of what we're going to need to do for resilience is diversify supply chains which ironically means more globalization, not less, as you have that diversification. I also think that we do need to bring in centrally to this conversation the set of issues around global public goods. I was disappointed that in a little video before we spoke, there was no reference to the imperative of sustainability. It seems to me that the most important area where there's scope for very substantially enhanced resource flow is support for transitions to renewable energy throughout emerging markets. In some cases, some form of subsidy or loan guarantee is going to be appropriate, reflecting the fact that there are large external benefits to the whole world when countries shift towards renewables. In other cases, it's going to be partnering with the private sector. But I think we, in addition to the centrality of the poverty mandate, in addition to the importance of growth, if we're going to achieve substantially enhanced resource transfer and if we're going to achieve substantially greater stability, we need to be doing much better on pandemic prevention, where the world gets only a mediocre grade on its response to COVID.

[Larry Summers]

And I'm not sure we're in a position yet to do much better in the future when the next pandemic comes, which I think will be within 15 years. And I think we really need to be thinking about every way we can to transfer more resources around energy transition. I have to say I'm kind of disappointed in this. In the very difficult year we have just been through, when I look at the levels of resource transfer from the international financial institutions, they've only sort of kept track from the World Bank with less than kept track, actually, with growth in the global economy since 2017. There was so much excitement about the SDR allocation a year and a half ago, but as I understand it, none of the vaunted reallocations and then re lending to poor countries have yet taken place, despite the difficult year that we've been through. So I hope that out of these meetings is going to come, frankly, an emphasis on less bureaucratic approaches and approaches that focus on speed. As a financial person who's worked for many years at the balance sheet of the World Bank, my sense is that in this kind of environment it can be used somewhat more aggressively than it has been traditionally.

[Larry Summers]

And I was gratified by the G 20 Wise Persons group or whatever it was that recently reached strong conclusions. And so I hope there will be a sense of what the magnitude of the additional lending that will come from more aggressive balance sheet use.

[David Malpass]

Yeah, those are all great themes and I think it's useful for the discussion and you're part of that discussion. The global public goods issue is one that really is dear to the World Bank's heart in that as we think about the mission, poverty alleviation and shared prosperity, that encompasses an overall living standard for people, that includes the concept of you living on one planet and so I think we need to look for ways to be more proactive in global public goods. And you know this very well. It's a hard problem for economics because you're trying to transfer resources for things that don't give yourself benefit. You're doing it for the greater benefit. We are launching this week a big new trust fund that is called Scale which is Sustainable Climate action and it is going to sit within the World Bank and help blend finance and also provide concessional resources, also buy down the interest rate of loans for countries to the extent that there is a global public good being provided. Meaning if the country is doing something that's good for the rest of the world, there can be assistance from the world into that.

[David Malpass]

So we are presenting that to the world. Our balance sheet has expanded dramatically under my presidency. So we've brought forward IDA, which itself is leveraging heavily in world markets. The World Bank is the most leveraged of the MDBs. So we have a five to one leverage. But I'll give another statistic and you know this one well. Since its inception, the World Bank has taken in $20 billion of paid in capital and put out 800 billion of commitments. So that's 20 to 800. Now that's over a lifetime since the late 1940s. So it's not all translatable, but it's a massive leveraging process. And I welcome the conversation that you're initiating, that Treasury Secretary Yellen has initiated of having the World Bank do more in terms of the leveraging capabilities and the instruments that we have. We're trying to do that. Your point was about the bureaucratic nature. One of the things I'm working on that you may like to hear the Bank has had a tendency to have too many small projects spread out over the whole span of countries. And one of the things we are trying explicitly to do in the Bank is to scale good projects.

[David Malpass]

Meaning if people in the Bank —and I'll speak to the whole audience here—, if you have a project that is good and it helps 10,000 people then I want to know about it. The Bank wants to know about it and we wanted to go times 100 because as we think about the benefits that the Bank can provide, we need to be dealing with millions and millions of people, whether it's refugees, whether it's people in famine, whether it's people affected by climate change and have a very expansionary effort of how big the good projects can be. Larry, I just wanted to say we are tackling the pandemic preparedness with the support of the US strong support, big support over these months. We've set up very quickly in the Bank a new financial intermediary facility which brings together donors from around the world. We've now got I think there's 20 donors in that. So that's good. The US just put into the clean technology Fund last week announced a contribution to that. I was with Janet Yellen this morning and she announced and reminded people of the contributions the US is making to the food and agriculture facility that the World Bank is the trustee of, but manages for the information flows within the food and fertilizer sector, all of that.

[David Malpass]

So I just want to go to your point —and you know this better than anyone—, the value of knowledge within the World Bank that can then be used in other country programs. And so we are ambitiously trying to expand that. Back to you. And then I think we're going to have to wrap.

[Larry Summers]

David, I'm really glad about all the things you said. I'm going to look forward to learning more about the scale program that you described. I'm going to look forward to learning more about your very ambitious plans to scale things up that you're doing that are important. I was part of a G20 group that worked on the design of that FIF and I think that is a very important and positive step. We will see where the discussion and the dialogue goes on with shareholders. Frankly, if you had asked me ten or 15 years ago, I think I would have thought of sustainability as being one aspect of inclusive growth. I think today, given the way in which these issues serve as a major threat, that sustainability may need to stand on its own as an objective in prosperity, not as one component of the mission. I thought for a long time that it should become the International Bank for Reconstruction, Sustainability and Development. And in parallel with that, David, I thought you're obviously much closer to all of this than I can be, that all of these separate World Bank administered trust funds have a kind of sense that they are boutique and slightly peripheral issues.

[Larry Summers]

And I would rather see more of these things centrally integrated into the work of the Bank. And I guess I would conclude by just repeating something that was in the Project Syndicate piece on the Bank that I wrote yesterday that you may have seen. I think the needs of this moment compel us over the next decade to think not in the billions, but in the trillions. And I think we need to hold ourselves to a standard, not of asking whether we're doing good things and more good things than we used to, but whether we're doing enough good things relative to the immense global challenge and the immense global opportunity. There has not been a moment with the revolutions in what happens at a price of solar energy, with the revolutions that artificial intelligence and information technology are making possible. That's what all your digital work has been about, David. There has not been a moment when there was so great an opportunity to invest resources on a large scale in promoting the development of countries where the vast majority of the world's population live and that is an immensely important mission for us all. I'm grateful that the World Bank, with your leadership, has so many dedicated and immensely talented people working with great energy and creativity to get that done.

[Larry Summers]

And I just hope and trust that in the future we're going to be able to make that energy be even more liberated and even more enforced.

[David Malpass]

That's a great closing. So I went to all those listening that was a call for there to be in this new scale facility, which is for climate action and also the pandemic preparedness for health action. Those are vehicles that can absorb tens of billions, hundreds of billions of dollars from donors today or tomorrow. And so we welcome people thinking really big about the needs for the developing world and then the resources that really need to be flowing. Thanks very much, Dr. Summers.

[Larry Summers]

Great to be with you, David. Thank you very much and good luck to all for the meeting.

[Paul Blake]

Thank you. And Dr. Summers, the President ask you to stick around for just 1 second. A couple of questions from the audience. The first one very quickly. Carlos Ordoñez wants to know about comprehensive debt relief. Is it even possible to restart progress and poverty reduction? And if so, what tools do countries have?

[David Malpass]

There's a long answer. So we need comprehensive debt reduction. We're working every day on that. I've had meetings already today on that. It's the idea that the composition of debt has changed a lot over the years, more toward China and more toward private sector creditors and the world just doesn't have the mechanisms to do what the question asked comprehensive debt relief. So we are in talking with the G 24 this morning and the G 20 we've proposed, World Bank has proposed that there be more involvement by all the creditors early, the debtor be involved, that's the debt or country, and that there be a comprehensive way to score or evaluate the debt reduction. So there's fairness in the burden sharing among the creditors.

[Paul Blake]

And Dr. Summers, do you have perspective on that tools countries have around debt relief?

[Larry Summers]

I think that I agree with what David Malpass said. I think the key here is going to be to find frameworks that understand the concerns of Chinese creditors and cooperate with Chinese creditors. Because I think in many of these situations, China has been a substantial creditor and has put forward substantial levels of funding. And I think that my hope would be that from the rather different perspective and the rather different type of institutions that exist in China, we can work out cooperative approaches.

[Paul Blake]

Dr. Summers, thank you so much. President Malpass, thank you so much for this conversation today. Really appreciate it.

[David Malpass]

Thank you, Larry. Bye all. Thank you.

[Paul Blake]

Please continue to post your questions and comments online at live worldbank.org. Our live expert bloggers are standing by to answer those questions. As many of them as they can in English, French, Spanish or Arabic. We're also broadcasting in those languages. So if you're watching at home online, and you prefer to listen in a different language, you can pick the language you want to listen to. Now, there's also an opportunity to take part in our poll. The question today we're asking is what is the most urgent policy priority for strengthening economic growth for all? Option A is curbing inflation. Option B is addressing unsustainable debt levels. If you think it's removing trade barriers, that's option C. And your last option is deducing property. So if you're here in the audience where you're watching at home online or at work online, you can vote at live worldbank.org. Now, how are developing countries affected by fiscal and monetary policies in advanced countries? With headwinds for growth coming in basically every direction, what can policymakers in developing countries do to reduce the effects of these headwinds and improve conditions for more people? Is there any room left for fiscal policy to help the poor?

[Paul Blake]

Let's look at the data and see how growth has correlated with debt and poverty in the past.

[Paul Blake]

Let's start by looking at the trend in global growth over the past three decades. For much of the 1990s and the 2000s, expanding trade and improved monetary and budget policies were fueling global growth. This blue line represents the annual global growth rate. Then you can see the dramatic impact of the financial crisis and the COVID-19 Pandemic. And today the context is still challenging. We're still suffering from the effects of more than two years of the Pandemic, and Russia's invasion of Ukraine has interrupted momentum in the recovery. This deceleration, following an initial recovery from the global recession, is the sharpest in more than 80 years. Growth is projected to slow from five 7% in 2021 to around 3% by 2023 2024. And many of the forces that previously supported that growth have reversed. Debt has risen to unsustainable levels, increasingly hampering the recovery. This chart shows how government debt rose steadily throughout the past decade. The orange line shows debt in advanced economies. The yellow line is for emerging market and developing economies, and the blue line tracks the overall position. On all measures, you can see a sharp increase in 2020 as governments responded to the covered shock as a share of the economy.

[Paul Blake]

Public debt is now over 100% in wealthy countries. For developing economies, which have less capacity to borrow, it's around 60%, which is a heavy burden for the poorest countries with huge needs for investment in health, education and infrastructure. These challenges, combined with a series of overlapping shocks, including the invasion of Ukraine, have added disastrous effects on poverty. Let's take a look at how the percentage of people in extreme poverty surviving in less than $2.15 a day has changed in recent years. You can see how up until 2019, efforts to boost growth and reduce poverty were delivering results. Now, this dotted line shows how poverty was expected to continue to decline out to 2030. These are the preCOVID projections, but the Pandemic reversed much of this progress. The Bank's latest Poverty and Shared Prosperity report has found around 70 million people were pushed into extreme poverty in the first year of the Pandemic alone, the largest single year change in more than 30 years. And here you can see just how dramatic the impact has been and how far we've been pushed off course. This is the current projection for extreme poverty rates. By 2030, 7% of the global population, nearly 600 million people, could still be living in extreme poverty.

[Paul Blake]

That's well above the global goal of 3%. To correct course, we need global action to revitalize growth, to improve the investment climate, keep trade flows open, boost digital innovation, and address unsustainable debt. These measures will all be imperative for poverty reduction. Getting back on track.

[Eric Kglan]

Hello, I'm Eric Kglan in Togo and you're watching the World Bank IMF Annual Meetings.

[Paul Blake]

Well, as you can see, the data underscores the urgency of taking action to improve the outlook for growth. Our next discussion will look at how to mobilize the private sector to deliver a more resilient, inclusive recovery. And we're joined now by Susan Lund, Vice President for Economics and Private Sector Development at the International Finance Corporation. And joining Susan is Mayada El-Zoghbi, Managing Director at the Center for Financial Inclusion, and Karima Ola, a partner at Leapfrog Investments. Susan, over to you.

[Paul Blake]

Susan.

[Susan Lund]

Thank you. These are amazing statistics about how the current set of overlapping crises has pushed more people into extreme poverty. Supporting and reviving private sector growth has never been more important to ensure that we get a resilient, inclusive recovery. But we already know that development pathways going forward are going to look different than they did in the past. Thanks to technology, we see in digital financial services, unbanked households and small businesses gaining access to finance for the first time through digital platforms. A recent report estimated that in Africa alone, FinTech revenues have grown to $5 billion annually. That's still only a few percentage points of the potential market, and we expect to see continued, very rapid growth. But the transformation is not just in financial services. At IFC, we've been investing in digital platforms that are transforming agricultural value chains, including reaching small farmers and retail value chains as well, as well as health and education. So I'm joined by two excellent guests who are going to give us their observations from what's happening on the ground and how we can engage the private sector and ensuring we have an inclusive, resilient economy. Mayada, I want to start with you.

[Susan Lund]

So we know that around the world, many of us started to use digital platforms and solutions more than we did before the Pandemic. Are you seeing the same things in emerging markets?

[Mayada El-Zoghbi]

So thank you so much for having me. I'm a former World Bank Group employee. And it's lovely to be back. I respect the World Bank's work tremendously and know that it's a massive challenge ahead. So I just wanted to say that the high level headlines are very positive and compelling. FinTechs has shown that a lot more people are accessing finance digitally than in the past, many for the very first time. A lot of it has been driven by mobile money and or government cash transfers. I'm going to talk a little bit about my organization's research. I work for the Center for Financial Inclusion, which is an independent think tank housed at Axion, and we've been doing research with support from the Center for Inclusive Growth at Mastercard with micro and small enterprises all around the world. We've honed in on four countries and our research is a little bit unique because we've been really tracking what's been happening to micro and small enterprises over the entire pandemic period. We've done six waves of data collection every couple of months. So we've really been able to see what's been happening to micro and small firms on the ground as Omicron has kicked in, or as other variants have come and gone, as lockdowns have happened, as government transfers have come out.

[Mayada El-Zoghbi]

And we've really seen the impact that all of us have had on micro and small enterprises. So there's some troubling signs, I hate to say, but also some positive signs. So some of the troubling signs are that there hasn't been full recovery since the beginning of the pandemic. As you might imagine, our first wave of data collection showed massive reductions in income and profits of these small firms. We also saw massive cuts in employment. And this is a problem for developing countries because micro and small enterprises are the biggest employers. We did start to see in our 6th wave recovery, but in no country have we started to see prepandemic levels of recovery. Nigeria, I know that's where you're from, that's where we've actually seen the best recovery in terms of employment, around 79% of prepandemic levels. But in other countries like Colombia, it's still quite low 50% of prepandemic levels. So there are still things to concern us. So the digital story is a positive story, but has not yet trickled down to micro and small enterprises. Sorry. For women in particular, we did see that their businesses have not been recovering as well. And then just the digital piece that I wanted to add on here is that while governments were distributing cash, while there was this compelling reason to use digital technology, whether to pay your suppliers, we only found 12% of small firms actually consistently using digital channels throughout the pandemic period.

[Mayada El-Zoghbi]

Many have reverted to cash in recent round. Now, that doesn't mean that they don't believe in it. We've done focus groups with a lot of these firms after we've done the data collection, and we see that there's a really positive feeling on adopting digital channels, but there's a lot of fears. And that's the thing that we feel that we have to address. I've seen other organizations have to think about it when we're investing in institutions that serve low income people. There's fear of fraud, there's fear of taxation, there's fear of price discoverability essentially people are afraid of competition when they post their price online. So there’s interest in it and these are some difficult things that we have to overcome as we think about serving them.

[Susan Lund]

Great. I want to bring in Karima. So Leapfrog Investments focuses on Africa, it's a private equity firm. Are you seeing similar trends? So we just heard that small and microbusinesses have not yet recovered. But I know that there are other crises around us, whether it be climate, whether it be rising interest rates and reversal of capital flows. What are you seeing, Karima?

[Karima Ola]

Yeah, I think would support what Mayada said. And I do think that a big part of the reason, for example, that we've seen digital use come off a bit is actually because there's also an affordability crisis going on at the same time. High interest rates are happening in countries that are actually high import countries when it comes to their essential goods. And so what you're seeing is that when you've got a conversion and you've got especially for small microbusinesses or low income consumers who are leapfrogs or target consumer. Their basket of goods just now cost 20 to 30, in some cases 50% higher than they did a year ago. So what you've got is you've got COVID, you've got the impact of the Ukraine war in terms of the cost of wheat, which is a staple amongst many countries in Africa. And then in addition to that, you then got conversion, which is… The video earlier on talks about the fact that debt levels went up post COVID. And with that debt levels going up, you've got inflation. So one is you've got… And then your euro bond or your foreign currency debt as a country is basically now costing substantially more and that's using up the forex preserves and that's basically putting some pressure on FX, which if you're in a country like Nigeria, where a lot of food and essential goods get imported, it's impacting.

[Karima Ola]

And so what we're seeing is as a result of that. While digital has been crucial to financial inclusion, data usage is expensive, so the data infrastructure is still very expensive. And so we carried out a survey of the customers of some of our portfolio companies recently and what we found is people just turn they use it once a day, they turn it off for most of the day. So while during COVID they used it most of the time, now the cost of it is actually a little bit higher than it was even during COVID. And then on the climate side, I always think this is about we can't talk about inclusive work without talking about climate because the path to net zero is one which impacts different people differently. And in Africa, which is currently, I think it's about 3%, its global carbon footprint, and that compares to 17% of the world population. What you're seeing is that… In Africa is where we're actually seeing we're at the coalface, as it were, when it comes to the impact. So extreme weather conditions which impact agriculture, and as we all know, agriculture touches the lives of 70% of the population across the board.

[[Karima Ola]

So what we're seeing is that there is an element of climate impacting agriculture and agricultural yields, and that's impacting income. And I think as we look to the future as well, I think there is an element that we have to sort of think through how when we think about climate, there has to be a just transition that enables development to happen at the same time that we can have an investment in clean technology.

[Susan Lund]

It's a really good point about foreign exchange rates. I know that IFC we're trying to scale up our use of local currency lending, so the borrowers are not taking the risk, the companies we invest in, but rather we're taking the risk on our balance sheet. Sometimes there are regulations in place that need to change for us to do that, but we see that as a big opportunity. And good points about all of the investments we need to make now need to be sustainable. We can't put off climate adaptation and mitigation even as we're dealing with food security, energy security issues and the adverse macroeconomic conditions. Mayada, I want to come back to something you said at the very end that's quite concerning, having to do with women falling even further behind. What do you see as a solution that policymakers can take or international organizations to reverse that trend and make sure that financial inclusion targets women's own businesses?

[Mayada El-Zoghbi]

Yes, it's a big challenge. We are making progress. I like to talk about India, which really did have massive progress in reducing the gender gap, a lot of it achieved in the last couple of years. However, women are not actually participating. They have empty accounts, essentially. So usage is still low. So there's still things to think about. One of the things that I found most troubling from recent reports that have come out is GSMA for the first time has pointed out that there's a reversal in mobile Internet access for women and that smartphone adoption has also stalled for women. So these are concerning trends. So it obviously makes us think, all right, if we're going to continue to support women's enterprises or women as heads of household or whatever, we really need to think about the barriers that women themselves face. And so this is where institutions like the IFC, as you invest in and work with first digital native providers, you have to think about what you have to ask them, what are they doing to address some of the bottlenecks that women face, including very basic things like mobile phone access. And so we recognize that private providers can't solve this by themselves.

[Mayada El-Zoghbi]

And this is where we know there has to be a collaboration between the private sector and the public sector. Governments have done a tremendous job. I would say a huge, a big part of the gains we've seen in digital finance in the last couple of years have really been because of the government digital cash transfer programs that have been instituted in most countries around the world, which is really impressive. But we know that fiscally they can't continue to do that. So we're going to need to step up in other ways to help address some of these challenges. So we do think providers should do more to try to serve women, but also we'll need to partner with government, we'll need to partner with the development community to try to address some of these, some of the challenges women face.

[Susan Lund]

Yeah, one of the things we're doing a lot at IFC is having car routes for women, whether it's lending to banks who online to women-owned businesses or digital, making sure there's more affordable housing, making sure that they're having a gender.

[Karima Ola]

Angle, if I may add to that Leapfrog as well. And one of the things that we've realized at the moment is that you're going to have true inclusive growth. Certainly I think the diversity question is one that we have to drive. I mean, we invest in a business that is a digital lender. And one of the issues we saw very early on is that women actually, they are better borrowers, they pay back sooner, they grow their business faster. And actually when it comes to the extension into other essential services, because as they're often making the decisions about education for children, they're involved in that as well. And as a result of that, one of the key things that we realize that we, as a provider of private capital into emerging markets, have to do is also focus on that. Which is why our latest fund, for example, is also a 2X, is also met the 2X challenge. Because what we realize is even though we exist for financial inclusion and health care access or access to essential services, if we don't include that either, whether it's at the board of the portfolio companies, the number of customers, products suited to the way that women make decisions, we're not going to get there.

[Karima Ola]

So we're making sure that that's much broader.

[Susan Lund]

Right. Karima, I wanted to ask you about a different kind of inclusion. I know in the tech hubs in Africa, we've got the major hubs in Cairo, Lagos, Johannesburg, Nairobi. How can we spread investment outside of those big tech clusters and how can we actually help more countries develop tech clusters? Because it is a good opportunity for young people. And I know that we've got investments outside those main hubs, but we'd love to hear from your view on the ground, how do we make sure growth is geographically inclusive?

[Karima Ola]

So first I like to just address the fact that I think if technology, if we didn't have the technological advancements that we had over the last ten to 15 years, a lot of progress that we made on financial inclusion or indeed access to other essential services just would not have happened because a big part of that has been, one, the use of mobile phones that's moved to smart but actually digital financial services through USSD is probably the most popular way of the way that people use digital financial services. And then the other thing is that it's also enabled… Platforms have made it really easy to actually transfer money in and out. And what that means is, 15 years ago, you couldn't have done many transactions that you could do today without having to go to a bank. It would take you three days to transfer. Whereas today, some of our portfolio companies, one of our portfolio companies for example, delivers digital remittances and through the digital platform is able to get capital in the hands of people who need it the most. At a fraction, we're talking about 25% of the price it used to cost quite a while ago.

[Karima Ola]

If you were SME, for example, just the idea of being able to take payments digitally was impossible. Whereas now, whether it's using an agent who are kind of independent players with a POS, mobile POS, they can get money in, they could get money out. And so what you've got is an SME who might be a sole trader or just two staff can now physically take digital payments. And so it's been absolutely phenomenal for driving financial inclusion across SMEs. That said, to date, all the focus has been on platforms. And I do think that part of that technology we've also seen happen at incumbent companies. So insurance companies —we invest in broad financial services—, but some incumbent, what you'd call bricks businesses, have also used this to also go down the path of being digitally enabled. And so they can now reach their customers, agents can reach price and the relationship between agents, low-income customers is so much easier. And I'll give you a couple of examples. PostCOVID we were looking at health insurance and there was some sense that low income consumers can't afford health insurance. And so it wasn't going to work.

[Karima Ola]

But because insurance companies now able speak to their customers by SMS, so you don't even need smartphones for this, we got some sense of affordability and it became very clear that everybody wanted health insurance. However, they couldn't afford to pay an annual premium. They paid monthly. We can't afford $100 a year, but we can pay $20 a month and they can do the math. It was a matter of cash flows and so very quickly insurance company was able to design products. I talked earlier on about affordability crisis and what we've seen in some, especially some investment linked insurance products, is people because they need the money they're surrendering. And if you surrender an insurance policy, you lose a lot of what you've invested in it to date because of the penalties. And if you're the company, you spent that time acquiring that customer. And once they lose it, they lose fake in that product altogether. And so without having to an agent can have that relationship and sort of try and get we use by the company using digital to communicate. They've been able to offer payment holidays or where you can take a percentage of your investments to date.

[Karima Ola]

But that means and after a while you can then continue it. So what you have is a customer that continues. So you say beyond tech. I actually think in about 15 years’ time we won't be talking about tech companies or nontech, because you either be digitally enabled, either as a disruptor or an incumbent company that is digitally enabled, or you won't exist. And I do think that's a legacy that will evolve and continue. And what that will do is over time, we hope that we'll continue to see the reduction in the price to serve all customers at a very low price, which essentially means that we will get more inclusive.

[Susan Lund]

Great, thank you very much. I'm afraid that we're out of time, but I do see our hope. So we have a few questions.

[Paul Blake]

I believe we are a little short on time, but I've got two audience questions, hoping we can answer them briefly. And the first one is for Mayada. Robert Smith asks if inclusive growth is the key to a lasting recovery, how do we define it? What are the key characteristics of inclusive growth that can apply to all countries?

[Mayada El-Zoghbi]

Yes, I think, simply put, it basically means everyone needs to benefit. Kind of the World Bank's motto, share prosperity. So if growth is captured by a certain segment, the elites or large firms, and it's not trickling down to small firms, then it's not inclusive. So, very simple. I think that digital finance is one very important piece of the puzzle to try to distribute that prosperity. But also it's more than that because we know that there are certain barriers that are just not overcome by the individual themselves, that there's going to be a need to make investments in infrastructure, to make investments in the safety of the digital financial system so that people trust it and aren't afraid of using it. So there's still kind of investments needed to help the people that are more difficult to reach, which is the next phase that I think we're entering.

[Paul Blake]

And Karima, Sheikh Muhammad Laghda from Mauritania sent us this question. What is the strategy that guarantees results in the short term to combat widespread property, especially in Africa?

[Karima Ola]

So, short term… It depends on how you define short term, but for me, short term would probably be beyond ten years and so, and I do think at the moment. We have a once in a lifetime opportunity to actually tackle poverty by basically mixing poverty reduction with the need to bring down our carbon footprint and waste usage. I think because I do think that what we need to do is if African get the investments it needs as it develops in clean technology. So that's clean technology driven development at the same time that we are able to create the right jobs in those key sectors. There's a once in a lifetime opportunity between now and 2050, but you could see it sooner to actually eradicate poverty globally.

[Paul Blake]

All right, well, Karima, Mayada, Susan, thank you so much for your time today.

[Mayada El-Zoghbi]

Thank you.

[Paul Blake]

Now, the Pandemic underscored how targeted cash transfers can be very effective as a way to help people earning in the bottom 40% of income far more effective than, say, subsidies, which tend to benefit the wealthier the most. Let's see how a program in Colombia helps Sonya Cifuentes help poor people like her buy food and other necessities during the Pandemic.

[Mariana Cerate]

Hi, everyone. I'm Mariana Cerate from Brasilia, Brazil. And you're watching the Golden Group IMF annual meetings.

[Paul Blake]

People have been sharing their thoughts on this event online and on social media. And I'm joined now by my colleague Sri Sridhar, who's been across the conversation. Sri, what are some of the highlights?

[Srimathi Sridhar]

Thanks, Paul. Good to see you and folks in the room. So we have people joining us across our social media channels today, Facebook, Twitter, LinkedIn and Instagram. And they're joining us from countries like India, France, Nigeria, Mauritania, United Kingdom, and the United States. And they're using the hashtag for today's event, #Growth4All to talk about inclusive economic growth, the use of digital technology, ending extreme poverty, and also the urgent policies that are needed to achieve global prosperity and sustainable growth. So I thought we could take a look at some of the specific comments that have been coming in on our LinkedIn channels. So let's take a look at the first one from Mohammed on LinkedIn. He's talking about our poll question today, which we'll get to in a bit, but he says that for him, curbing inflation, addressing debt levels, removing trade barriers, and reducing poverty play a tremendous role in economic growth. So let's put them all as priority.

[Paul Blake]

He would be voting for the all of the above if you could.

[Srimathi Sridhar]

Yes. Hard to not agree with him here. Second LinkedIn comment coming in from Janet Werba, who says that inclusion is key. Once everyone is sincerely involved, solutions would be easier.

[Paul Blake]

Lovely sentiment. You have also been across the poll. Remind us what the question was.

[Srimathi Sridhar]

Yeah, so the question for today's poll asked, what is the most urgent policy priority for strengthening economic growth? So we had four options. Is it A, curbing inflation, B, addressing unsustainable debt levels, C, removing trade barriers, or D, reducing poverty? Unfortunately, not all of the above here, but I'm leaning a bit towards A. What are you feeling?

[Paul Blake]

I think I voted for B, but I honestly don't know how people would vote. You'll have to tell us.

[Srimathi Sridhar]

Yes, well, let's take a look at the results and as they come in wanting to share. We had over 800 people take part in the poll today, but here are the results so far. 24% of people are voting for A, curbing inflation, 16% addressing unsustainable debt levels, 15% removing trade barriers. And 45% of people believe that reducing poverty is the most urgent.

[Paul Blake]

Pretty strong plurality for reducing poverty there.

[Srimathi Sridhar]

Yes, sure.

[Paul Blake]

Sri, thank you so much. Let us know what else you see in the coming days.

[Srimathi Sridhar]

Thanks, Paul.

[John Osino]

Hello, my name is John Osino in Athens, Greece, and you're watching the World Bank IMF Annual Meetings.

[Paul Blake]

Well, finally, as we start to wrap up a few takeaways from today's session. First, stronger growth is key to reducing poverty and addressing climate change. Second, we must prepare now for tougher global financial conditions to come. And finally, policy reform, innovation and investing in people supports shared prosperity. That brings us to the end of this event on boosting growth and alleviating poverty. But there's more to come. Join us later this afternoon for another high-level discussion, this time on the human cost of the food and fuel crisis. Then tomorrow we'll be discussing the importance of investing in education as well as meeting Ukraine's financing needs. Our final event on Thursday will focus on financing climate action. We hope you'll be able to join us for each of these. And you can also rewatch today's session as well as the kickoff discussion with World Bank Group president David Malpass and IMF Managing director Kristalina Georgieva. They are all available at live worldbank.org. And do share your comments and thoughts throughout these 2022 meetings using the hashtag #ResilientFuture. That's the hashtag for the whole week. And we hope you've enjoyed hearing from all of our distinguished guests today.

[Paul Blake]

Please do continue to share your comments and questions. We'd love to hear from you. My name is Paul Blake. Thank you so much for being here. We really appreciate it. Goodbye.

00:00 Welcome! Annual Meetings | Inclusive Growth
02:53 Conversation between David Malpass and Larry Summers
29:49 Live Q&A
32:56 Data in focus: Growth, debt, and poverty
36:25 The role of the private sector for an inclusive growth
55:42 Live Q&A
58:14 Stories of impact: Cash transfers in Bogota, Colombia
1:01:07 Social media conversation and poll
1:03:43 Key takeaways and closure