The Way Forward: Addressing Multiple Crises in an Era of Volatility

MS. MOSSOT:  Good morning, or good evening to our viewers around the world and welcome to the International Monetary Fund’s headquarters in Washington, D.C.  I am Tatiana Mossot with the IMF’s Communications Department, your host and presenter for The Way Forward: Addressing Multiple Crises in an Era of Volatility.  To kick off the 2022 annual meetings events, I am pleased to introduce a conversation between the IMF Managing Director, Kristalina Georgieva, and World Bank Group President Malpass.  Over to you, my managing director.

MS. GEORGIEVA:   Thank you.  David, welcome.  It is great we start this week of the annual meetings together.  It is the first time in three years when the annual meetings will be in person and it’s so important that we are coming here in Washington at a particularly difficult and complex time.  Over these last three years, we lived through unthinkable events that are having significant consequences: Covid still with us, Russia’s invasion of Ukraine, dramatic consequences everywhere, climate disasters on all continents, and all of this has driven people into a very difficult place.  They’re exhausted and they have to cope with a cost-of-living crisis.  What we see perhaps is a fundamental shift from the world of the last decades that was relatively predictable with strong rules-based international order, low inflation, low interest rates, to a world that is more volatile, more fragile, and with consequences that we have to wrestle with, grapple with, here in D.C. during this week.  And, of course, it is hard for everybody everywhere, but it is particularly hard for people in developing countries.  So, I want to start this conversation by asking you what is top of mind for you, for the staff of the World Bank, as we enter the week of the annual meetings?

MR. MALPASS:   Thanks.  Good to be here, Kristalina, and this is our curtain-raiser.  I feel lots of the energy from the World Bank, from the IMF staff in terms of tackling the problems, but we have to put it in the context of the severity of the problem, so the risk and the real danger of a world recession next year, the advanced economies are slowing in Europe and so we’ll see where it goes into next year, but the currency depreciation means that the debt levels for the developing countries are getting more and more burdensome.  The rise in interest rates puts added weight on it.  And inflation is still a major problem for everyone, but especially for the poor.  So, those are all issues.  We have a lot of -- World Bank has a lot of data coming out.  We did our poverty report last week for the first time in two years, or it's a two-year cycle.  It shows 70 million more in poverty and also, very concerning, a 4 percent reduction in median income, so as we think about our goal of shared prosperity, it's not happening.  There’s reversals going on in development.  I call it a crisis facing development.  One of the things is the advanced economies are taking a lot of the world’s capital.  That comes in the form of the fiscal deficits, the heavy borrowing by bit corporations, and the central banks themselves buying only the bonds of the very advanced countries, and so that puts a strain on development from the macro side, and then, of course, from the individual side, we see the problems of education and energy, shortages of fertilizer and of food crops.  So, it’s a vast array of problems.  I hope -- and we always talk about solutions, so that’s one of the things.  I wanted to ask you, too, what do you see the forces and I can talk about things that could be done, but one of our core desires is to see more resources flowing into the developing world.  What do you think?

MS. GEORGIEVA:  Well, I very much agree with you that the risk of recession has gone up.  We have calculated that about one-third equivalent of the world economy would have at least two consecutive quarters of negative growth this year and next year and that the total amount that would be wiped out by the slow down of the world economy is going to be between now and 2026, four trillion dollars, this is the size of Germany GDP gone and when we look at the picture, we are asking what are the drivers and, of course, what can be done?  What are the drivers?  They are the forces of disruption I started with, the impact of Covid on supply chains, the senseless war that is causing a push of prices up, especially the energy and food prices, and major disruptions as a result in how economies function.  The prices going up, inflation that is stubbornly high, and necessitates tightening of financial conditions that has gone faster than originally anticipated.  So, when we look at these drivers, then what are the consequences?  We are seeing slow down in all three key economies of the world.  Eurozone because primarily because of gas prices shooting up, China because of Covid disruptions, and the volatility of the housing sector.  We see a very significant problem in China dragging down growth.  And in the United States, still very strong labor market, but also losing a bit of momentum because interest rates are starting to bite.  And so when we are in this environment, the question for us this week is what can be done?  What we are advocating for, David, are actions in three areas.  First, contain inflation.  We cannot afford inflation to be a runaway train and we are risking if we don’t have strong action for this to happen.  But it is a very, very difficult role to navigate because if you don’t do enough, we are in trouble and, of course, inflation is a dramatic tax especially on the poor people. But if it tightens too much, then the fears of recession will materialize on a large scale.  We have to think of the strong dollar that comes with tightening of financial conditions and how it impacts developing countries and maybe you have some thoughts around that.  Secondly, it is painful for people, so some support is necessary, but that support has to be well-targeted, because if it is not, then we are adding fuel to the flames of inflation, and that working together, monetary policy, fiscal policy this year is absolutely paramount.  Otherwise, for anybody who is a driver, we would have monetary policy stepping on the brakes and fiscal policy stepping on the accelerator.  Not a good ride.  And three, and this is where I really want to hear more from you, we have to join forces to help emerging markets in developing economies that are particularly hard-hit by tightening of financial conditions.  You spoke about capital not being available to help them through, and also to get the big scary danger of that crisis under control because otherwise not only countries affected by it would suffer, the whole world would suffer.  So, not a rosy picture, but if we join forces, if we act together, we can reduce the pain that is ahead of us in 2023. 

MR. MALPASS:   That’s right.  And it’s a global community effort.  One of the issues is how to get more production.  How to get more growth.  And that, I think, you know, starts normally with advanced economies.  They have more capital and the ability to really apply it to various sectors.  That will help with inflation and that’s, you’re exactly right, that’s super important.  I think markets look ahead, so one of the things is, if there can be a concerted effort to describe growth policies going forward, ones that add to supply, then that immediately begins to address some of the concerns about inflation expectations which are so important to get down.  We have to face the starting point that interest rates were probably too low at the beginning of the cycle, substantially too low, so some parts of the world are still getting back to what might be a neutral spot.  So, getting there quickly is important.  And then as we think about then the capital flows, I do think there needs to be a rethinking by the advanced economies of some of the basics.  One would be to have debt limits.  It’s very hard to think of a world growth environment where a certain small group of countries have unlimited amounts of debt that they can issue during, even during a crisis, or apart from a crisis, because as the governments do that, it takes up the available capital.  And then we also have this issue that I mentioned of central banks buying the bonds, which had never been done prior to 2009, the bonds, but only of the advanced economies.  And so that creates this bias, there’s both a regulatory and a capital bias within the world, that works against the developing countries.  So that takes me to the, you’re exactly right about the need to keep targeted -- if you have subsidies, have them be targeted, because there’s only so much fiscal space, fiscal availability, whether you’re in advanced economies or in developing countries, there can’t be a subsidy for everybody because then you quickly run out of money.  So as World Bank works hard on individual developing countries, a primary concept that we’re doing is both supporting the emergency situation, for example, we’re doing that now with big food programs, but then also trying to help the countries have better policies that have fewer subsidies for the upper end --

MS. GEORGIEVA:   Yes.

MR. MALPASS:   -- and more availability of both financing, inclusive financing, for women, for new businesses, and for small businesses within their economies.  So, we’re -- that goes almost country by country to have stronger programs that do that.  And then we have to work so fast now to create space for the climate problems that are facing many of the developing countries most.

MS. GEORGIEVA:   Yes. I want to compliment you and your staff at the Bank for two things:  one, how quickly you brought forward resources to address the food crisis.  The 20 billion that you are making available is going to go a long way to help countries.  There are about 48 that are severely impacted by food insecurity.  I actually am heartbroken to see the world again witnessing increasing poverty, increasing hunger and malnutrition.  At the IMF, we are, I call it the third line of defense, we want to see humanitarian in the system’s grants, we want to see the World Bank as you are doing it be out there.  But we are also making funding available for balance of payment needs.  We have created the food shock window so countries that are affected either because they cannot export their food, like Ukraine, or because they cannot import food, like many countries, especially in sub-Sahara Africa can benefit.

MR. MALPASS:   This is food and fertilizer and energy, so it’s all hitting the --

MS. GEORGIEVA:   Exactly. At the same time. 

MR. MALPASS:   Any estimates of how much?

MS. GEORGIEVA:   For the, we are looking at the estimates of the impact.  We took specifically to heart the issue of food.  Why?  Because you die when food is not available.  This is not a trivial question.  And we identified about nine billion dollars shortfall in terms of balance of payment coverage for this only and now we are looking, of course, into the impact of energy on developing countries.  But just to go to a point that you made that the bank is also stepping up in climate for which I congratulate the staff and you and everybody in the Bank for taking that issue to heart.  I want to be very clear on this.  It is bad to have inflation.  But we will survive as humanity.  And it’s very bad to have recessions.  It would affect people horribly, especially poor people, but we can survive it as humanity.  We cannot survive an unabated climate crisis.  So mobilizing today for a more resilient tomorrow is exactly what we should do.  As you know, we have stepped up at the Fund.  I want to thank for the support of bank staff to our new Resilience and Sustainability Trust.  We made the promise that it would be operational in October and, David, I can tell our audience we fulfilled this promise.  We have three countries already with programs that would go to our board, Barbados, Costa Rica and Rwanda, and so we will ride on your analytical work to bring policy reforms that would help countries be more resilient to climate shocks and also to go to a low emission trajectory for the future.  I want to ask you, we are in this week there will be intensive discussions.  What does success of the meetings look like from your perspective?

MR. MALPASS:   Well, I think we have a lot of core symposiums and discussions.  I’ll be talking with Larry Summers at 1 to talk about the macro --

MS. GEORGIEVA:   Oh, right.

MR. MALPASS:   We have an energy conference.  We have Ukraine, which is a very important meeting.  On climate, there’s a range, and I want to come back to that and so, you know, as I’ve been at the Bank now three and a half years, we’ve had record climate financing in each year and we reached a big new record in 2022, that’s our current fiscal year, of 31.9 billion dollars so I --

MS. GEORGIEVA:   You can say 32 billion, about 32 billion --

MR. MALPASS:   Thirty-two billion.  Which is not enough, obviously.  There needs to be a really big global effort, so I want to go through, I’m glad you raised the diagnostics, so we put a lot of focus on helping countries understand what they can and should be doing on both adaptation and mitigation.  So that forms the global core diagnostic for climate change.  So, it’s been a giant effort by the Bank and intense focus by people on creating this, and you mentioned key countries of Rwanda and Costa Rica and Barbados, but we’re doing big emitter countries, such as Vietnam, down the line there’ll be China, and these form then the basis for how the world can move forward.  And I want to mention, you know, the U.S. just last week had been strongly supportive of this effort and put nearly a billion --

MS. GEORGIEVA:   Yes, yes, yup --

MR. MALPASS:   -- they had a specific number into the clean technology fund, so we welcome that.  That’s -- the World Bank has a lot of the key trust funds that are making available global resources into the climate space. We’re launching right now one called Scale which is sustainable climate action, that will be a major conduit for the world putting money into the climate space, because one of the big challenges has been to have projects that are really impactful.  We want to get results that we, the World Bank, and people are working all over the Bank, to actually identify the changes that are needed.  So, how do you close a coal-fired power plant in South Africa?  Well, we’re doing that, and on down the list, but it takes huge amounts of money from the global community to do that.  So, we’re setting up the mechanisms for that.  Of course, everyone wants to move faster, but the reality is the World Bank can be the core of the programs that actually have an impact, that actually make change.

MS. GEORGIEVA:   One area where we ought to join forces is to make it so that more capital, as you said before, goes for climate action in emerging markets and developing economies.  The numbers are staggering.  To date we spent as a global community about 630 billion dollars for climate adaptation and mitigation but what the world needs is somewhere between three and six trillion dollars, so we are not even close to this numbers.  So how can we work together to make the policy reforms we support and your ability to focus on what works on the investment side, to move private money on scale to address the climate challenge?  Because if emerging markets in developing countries do not bring their trajectory, emissions trajectory, down, it doesn’t really matter what the advanced economies would achieve, because growth is expanding there in the emerging world.  I see a huge opportunity for collaboration in that area.  And actually I see a chance throughout the meetings, David, for us to demonstrate that together we can better focus policies so they make a difference and together we can get this duality of a faction, stabilize the world economy, and transform it for the future. 

MR. MALPASS:   That’s great.  And I want to come back to the fragile country and the debt issues that you mentioned earlier.  With regard to climate, there’s a direct application of it.  So, the World Bank can help by leveraging itself.  So, I’ll give you a statistic.  I don’t know if you, who know the  Bank very well, may not know this one.  20.6 billion dollars is the entire paid in capital since the inception of the Bank, and that’s been leveraged into 820 billion dollars through the leveraging process of IBRD, and then we’re also doing that with IDA which is our fund for the poorest.  It borrows from international markets.  So, there’s the direct aspect of what the Bank can do, but that puts in perspective the entire life of the IBRD has had 820 billion dollars of commitment and you’re mentioning the need for a trillion dollars and really some of the estimates are much higher for climate adaptation and mitigation and so I think we need to really look for the second area, that the World Bank can do X, but then the rest of the world needs to be thinking in terms of doing 10X or 100X of what can be done.  Our annual programs, for example, in important countries, Indonesia, are two billion, three billion, maybe five billion dollars in program, when what they need, as Shre Miliani pointed out on Glasgow, 283 hundred billion dollars right up front in order to address coal.

MS. GEORGIEVA:   And that can only come from public money opening space for private money on scale.  It’s not going to come from public finance, and this is why I think I’m very, very excited about thinking differently of how we deploy public money, how we measure the impact of public money.  So, it goes into the direction of what you said in the beginning of our conversation.  To correct what today is primarily private finance going into the less risky part of the world whereas where we need it the most is where the problems are most severe.

MR. MALPASS:   So, we’re looking for all ways to improve and expand resources, so we, you know, we do, we’re doing actively donor guarantees where donor countries can guarantee World Bank lending and that helps expand.  We guarantee, the World Bank, guarantees some projects, but a challenge in that area is to have the risk be fairly allocated between the lender, who is often from the wealthy country, and the development --

MS. GEORGIEVA:   Exactly.

MR. MALPASS:   -- purpose that you’re really putting.  So we’re working on those constantly, meeting frequently with the financial institutions of the advanced economies.  I want to mention and ask your thoughts on -- so the fragility problem is huge.  The arms flow through North Africa hitting the ZeHel (phonetic) is a giant challenge.  Russia is often moving into the space, so we need to, I think, urgently find ways to put resources into these countries.  That means from our two institutions, all the other world institutions that can add some to those totals, so that’s a problem and then the debt numbers are staggering.  We’re estimating in 2022 the IDA countries, the poorest countries, would have to put out $44 billion of their money, some of it comes from our two institutions, to pay the creditors, almost all of whom live in wealthy countries.  So, I think we need to really have an urgent focus on reducing those, the unsustainable debt, so that we can get to a point where there’s more fiscal space for all the other things we’ve talked about. 

MS. GEORGIEVA:   And that would be one of the topics that we would discuss thoroughly during the annual meetings, but discussions only take us that far.  We need to have action that is at par with the size of the problem and, as you said, David, we are yet to get there.  We have made some progress.  You led the DSSI, we led it together, we now have some progress with the common framework, but meanwhile the problem is getting bigger and bigger and we have to bring everybody around the table, private sector, the large bilaterals, China, of course, is among them, and then have resolution of that early so countries can breathe and they can grow and then service there that obligations as a result.

MR. MALPASS:   Yeah, these are powerful --

MS. GEORGIEVA:   Yup.  And I can see that we should have another conversation at the end of the meetings and see how much we have achieved during this week.

MR. MALPASS:   Fabulous.  Look forward to it. 

MS. GEORGIEVA:   Thank you, David. 

MS MOSSOT:  Thank you very much, Managing Director Georgieva and President Malpass, for the insightful and very informative discussion which highlighted some of the major issues to expect in the coming week of the meetings.  For all upcoming public and media events, please follow us on IMF.org and all the IMF social media platforms.  Thank you. 

00:00 Opening
02:24 Multiple crises: Forces behind and top priorities
07:05 What can be done and jointed efforts
12:45 Food, energy, and climate crises
16:30 Expectations around the Annual Meetings
17:43 Country Climate and Development Reports
19:34 Leveraging capital for climate action
24:36 Fragility and conflicts
26:44 Closure