Good morning and thank you for joining. I’ll address our global growth outlook; rising levels of debt distress and possible directions to achieve debt transparency and sustainability; the need for greatly expanded resources for developing countries, including deeply concessional resources; and attractive investment climate and governance standards. And I’ll welcome questions.
The crisis facing development is intensifying as the global growth outlook weakens. Our latest forecasts indicate a sharp and long-lasting slowdown that will hit developing countries hard.
We project the global economy to grow by 1.7% in 2023, down from 3% expected six months ago. I am deeply concerned that the slowdown may persist. According to our projections, average global growth between 2020-2024 will be less than 2%, the slowest 5-year growth average since 1960. This risks widespread asset repricing as weak growth persists and the increase in interest rates reduces access to capital.
A sharp, long-lasting slowdown would hit emerging markets and developing economies particularly hard. They are facing a multi-year period of slow growth driven by weak investment as global capital is absorbed by advanced economies to meet extremely high government debt levels and rising interest rates – and also heavy debt burdens. The combination of weak growth, under-investment, inflation, and currency depreciation will undercut the increasing demands from climate change and compound the already-devastating reversals in education, health, infrastructure, poverty, and median income. Russia’s invasion of Ukraine has added major new costs. The outlook is particularly devastating for many of the poorest economies, where poverty reduction has already ground to a halt; and access to electricity, fertilizer, food, and capital is likely to remain limited for a prolonged period.
Much more investment is needed, but the current rate isn’t enough even to maintain capital stocks, much less increase them. Investment obstacles include the increasing cost of capital, the poor climate facing Foreign Direct Investment (FDI), and the large fiscal demand on global capital by the governments of advanced economies.
Investment and access to capital are also being constrained by the 50-year high in debt. Today, roughly one in five developing countries is effectively locked out of global debt markets, up from one in 15 in 2019. We’ve strongly advocated quicker and more efficient debt restructuring processes, but progress remains stalled. Many governments face a fiscal crisis and political instability that could push millions more into poverty and could hinder the ability of countries to increase access to electricity, clean water, and foundational learning skills and meet the demands of climate change.
Addressing the scale of these challenges will require significantly more resources for development and global public goods. We are exploring with our shareholders further increases in our own financing and new mechanisms to channel concessional and grant resources from the global community.
Restoring progress in median per-capita income growth is critical, particularly where poverty rates are highest. Unfortunately, rising poverty rates are often occurring in areas where investment rates are low and population growth rates are high. There’s a devastating disconnect between the areas that need huge new investment to enable their growing population and actual investment flows. In Sub-Saharan Africa, which is home to 60% of the world’s poor, per-capita income growth is expected to average just 1.2% over the next two years—a rate that would cause poverty rates to rise, not fall.
In addition to resources, let me mention five key steps:
- First, encourage more investment to create jobs, increase output, and boost production, allowing growth in consumption.
- Second, improve the business enabling environment and strengthen the rule of law. Restrictions on FDI and corruption are key factors limiting the quantity and quality of cross-border investment. Reducing business start-up costs and strengthening property rights can also help enable business growth.
- Third, increase debt transparency and sustainability, especially for the rising share of poor countries that are at high risk of debt distress.
- Fourth, integrate climate and development in ways that increase energy access and speed up the transition to lower-carbon energy. This needs to be complemented by increased investment in climate adaptation.
- Fifth, strengthen cross-border trade. Protectionist measures including the latest wave of export bans on food and fertilizers should be shunned.
In conclusion, even in a time of scarce resources, there is much that policymakers can do to encourage the right investments to materialize. With that, I’m happy to take your questions.
