Jose Luis Magana/AP Photo
World Bank President David Malpass speaks at the Generating Growth forum during the World Bank/IMF Spring Meetings at the World Bank headquarters in Washington, April 11, 2023.
As members of the World Bank and the International Monetary Fund (IMF) gather for Spring Meetings in Washington this week, protesters have taken to the streets in Kenya. Nairobi is struggling to meet rising debt payments, so the government has announced that it will withhold March salaries of public employees, including those of some government ministers.
Most Kenyan civil servants last received a paycheck in January. “Something has to give,” the president’s top economic adviser wrote on Twitter last week, justifying the decision to withhold pay for another month. “Salaries or default? Take your pick.”
The choice between basic spending and debt payments is becoming more acute for governments across the developing world. In Kenya, the price of goods has risen dramatically, eliciting protests and accusations that the government is illegitimate.
“The opposition has been rallying people for mass action. We’ve seen violent protests already,” Joab Okanda, a Nairobi-based researcher with the development organization Christian Aid, told the Prospect. “If that continues, actually, the country’s likely to become unstable.”
Okanda arrived in Washington on Thursday to campaign for debt relief. So far, the talks have made little progress, though China, one key holdout in negotiations, appeared to soften its stance on Thursday. Meanwhile Kenya, which is now forking over 65 percent of its revenue to debt servicing, could follow countries like Zambia and Ghana into default. As of February, the IMF says nearly 70 countries are already in, or at risk of falling into, debt distress.
But what now seems more likely than a string of defaults in the developing world is a period of quiet atrophy under austerity budgets. The U.N. Conference on Trade and Development (UNCTAD) predicts a lost decade of development. Their new report finds that interest rate hikes since March of last year will cost developing countries, excluding China, more than $800 billion in lost income over the coming years.
Spiking debt payments and borrowing costs are particularly painful since they come right as growth is slowing. The downturn is partly engineered by central banks in rich countries, which are raising interest rates and stalling economic activity, in an attempt to prevent their own markets from overheating.
World Bank and IMF officials this week have been unusually candid about the grim outlook. On Thursday, IMF Managing Director Kristalina Georgieva said current conditions look like the stagnation that was setting in before the pandemic, in 2019: “synchronized slowdown, low productivity, low growth, social unrest.”
As they emerged from the pandemic, rich countries spent heavily on reviving domestic manufacturing. That has left developing countries, many of which are too cash-strapped to subsidize their own national champions, worrying about being locked out of future growth.
THE MOST FASHIONABLE CONCERN at this year’s Spring Meetings, among the right-minded liberals who staff and influence multilateral institutions, is conserving “global public goods.” The term refers to threats in developing countries with potential spillovers in richer countries: war, pandemics, and climate change.
U.S. Treasury Secretary Janet Yellen, joined by Germany, has spearheaded the effort to refocus the World Bank around climate. In October, she tasked the Bank with developing an “evolution roadmap” prepared to take on global challenges.
What now seems more likely than a string of defaults in the developing world is a period of quiet atrophy under austerity budgets.
In a statement last month after a meeting with Yellen, German development minister Svenja Schulze said that “in these times, it is only possible to successfully reduce poverty if climate action and social protection are addressed at the same time.”
The U.S. recently passed sweeping legislation to fund green growth, and the EU is looking to loosen spending constraints in order to subsidize clean-technology firms. But so far, Western countries have not approved an equivalent scaling-up of resources at multilateral institutions. According to development economists at Boston University, the World Bank’s pivot to climate risks becoming an “unfunded mandate.”
That has left developing countries worried that new climate targets could come at the expense of the World Bank’s mission to reduce poverty. “Evolution in the real sense of the word cannot be achieved by reallocation of existing resources from current priorities to new goals,” India’s finance minister Nirmala Sitharaman said on Wednesday.
Finance ministers from other emerging markets echoed the statement, warning of potential trade-offs between climate and growth. To avoid the charge that they are reshuffling scarce resources, officials point to an uptick in capacity: The World Bank announced that it will loan $5 billion more each year, through a tweak to lending rules.
But even setting aside other “global public goods,” that is only a small part of the funding officials say is needed to tackle climate change. An expert panel convened at last year’s COP climate conference concluded that the world will need to spend $4 trillion every year on sustainable development.
If some statesmen in emerging markets worry that climate could crowd out poverty reduction, others see an opportunity in rich countries’ crisis-era enthusiasm for conserving global public goods.
The Caribbean island of Barbados has led an initiative backed by low- and middle-income countries to channel billions in financing to parts of the world most vulnerable to climate change.
“These developed-country kids are gluing themselves to the road on climate change. They’re not gluing themselves to the road on water scarcity, on development, on gender violence,” Avinash Persaud, the agenda’s author, said on a panel in March. “So, let’s ride that.”
OUTGOING WORLD BANK PRESIDENT David Malpass has tried his best, he told journalists at a press conference, but the World Bank is constrained in what it can do.
“The likelihood is a long period of slow growth, asset repricing, and capital moving in the wrong direction—toward a narrow group of governments and big corporations,” he said. “Available global capital is being absorbed by a narrow group of advanced economies that have extremely high government debt levels … Their populations are aging rapidly and the peace dividend of the 1990s was used up.”
Malpass reportedly had an even grimmer message for delegates at the meeting of the G24, a bloc of developing countries who met in D.C. this week alongside the Bank and Fund conferences. According to several delegates who were in the room for his remarks, which were not made public, Malpass stressed that there was little ambition among rich countries to stem economic crisis elsewhere.
“Countries should be aware that they are going to rely on themselves, because there’s not much money from the treasuries of developed countries,” said one member of a South American country delegation, summarizing his recollection of Malpass’s remarks.
Some attendees said it reinforced a perception that the U.S. and its multilateral institutions are in retreat from tackling challenges in the developing world. Others may fill the gap. Flush with new oil revenues, the United Arab Emirates and other Gulf States are lending to indebted allies like Egypt and Pakistan. Former Brazilian President Dilma Rousseff was last month elected to lead the New Development Bank, headquartered in Shanghai, China.
“Having the president [of the World Bank] telling us loud and clear, very frankly, that developing countries will have to rely on their own efforts, because major economies will absorb the available capital—we appreciate it, because it’s very clear and loud, but also it’s very frustrating, because the World Bank was actually created to provide for that,” Pedro Luis Pedroso Cuesta, the Cuban permanent representative to the United Nations, told the Prospect.
“That presents an opportunity,” he added, “for developing countries to strengthen South-South cooperation.”
