Bahama Times

Saturday, Mar 25, 2023

World Bank and IMF gathering underscores a bleak global outlook | Larry Elliot

World Bank and IMF gathering underscores a bleak global outlook | Larry Elliot

If Russia’s invasion of Ukraine is hurting developed countries, it’s proving a hammer blow for the poor

In Washington it was the week of the four Ws – war, walkouts, weakness and warnings. Some half-yearly get-togethers of the International Monetary Fund and the World Bank are dull, easily forgettable affairs; this was not one of them.

The first W – the war in Ukraine – dominated the meetings and could well dominate the next gathering of the two institutions in the autumn as well. Despite pleas for the fighting to stop, there is no sign of that happening.

This will have dire consequences for Ukraine, Europe’s poorest country even before the Russian invasion. The World Bank estimates the cost in ruined buildings and infrastructure alone runs to $60bn (£46.7bn). The IMF says the economy could contract by almost 40% this year and that Kyiv will need external support of $5bn a month simply to keep the country operating.

Russia will also suffer severe damage as a result of its aggression, but the impact of the war is not confined to the two protagonists. It is leading to dearer energy and food, while the resulting higher inflation and slower global growth mean there is both a humanitarian and an economic rationale for bringing the war to an end.

Hence the second W: the symbolic walkout by the British, Americans and Canadians when the Russian representatives started to speak at the meeting of G20 finance ministers and central bank governors. Russia retaliated by blocking the release of a communique at the end of the meeting of the IMF’s main policy committee, which traditionally requires unanimity.

These diplomatic manoeuvres highlighted weaknesses in the multilateral system – the third W. The G20 came to prominence during the global financial crisis and was supposed to supersede the G7 as the prime international forum for economic policymakers.

This made sense. The G7 represented only the bigger developed countries while the G20 included a broader group of strategically important nations such as China, India, Brazil, Saudi Arabia – and Russia.

The G20 made a good start at the London summit of 2009 but has subsequently failed on its promise. It has become a talking shop where countries discuss the pressing problems of the day – the need to make vaccines widely available or the lack of an effective mechanism for delivering debt relief – but then fail to come up with the required solutions. There is plenty of grandstanding but little common purpose, as was demonstrated last week. By no means all G20 members are willing publicly to express displeasure at what Russia is doing in Ukraine.

This brings us to the fourth and final W: the air in Washington last week was thick with warnings. The IMF warned that recovery from the pandemic would be a lot slower than expected and that central banks would find it harder to calibrate the right level for interest rates. The World Bank warned that people would go hungry as a result of higher food prices, perhaps resulting in social unrest. Both the IMF and the World Bank warned of rising debt distress.

The outlook is poor for developed countries such as Britain, where cost of living pressures are already starting to weigh on confidence and spending. The prospects are, though, even worse for poorer parts of the world at a time when some central banks – including the US Federal Reserve – are becoming increasingly hawkish.

Krishna Guha, an analyst at the investment bank Evercore, says: “The larger takeaway from the IMF and World Bank meetings … is the acute vulnerability of non-commodity exporting emerging market countries to a perfect storm of an unfinished pandemic recovery with high debt, the war shock to energy and food prices, China lockdown growth risk, and Fed tightening.”

That is a reasonable summary and echoes warnings from the UN that weaker global demand, insufficient policy coordination at the international level and rising debt levels from the pandemic will generate financial shockwaves that will push some developing countries into a downward spiral of insolvency, recession and arrested development.

Achim Steiner, an administrator of the UN Development Programme, says he is “extremely concerned” at the scale of the crisis and the speed at which it is unfolding. “We are ill-prepared to deal with this. As a result of the pandemic, many poor countries have no fiscal space left and have their backs to the wall”. Almost 70 countries, he adds, are facing the “perfect storm” of rising energy costs, rising food prices and heavier debt-servicing costs.

A fifth W was notable by its absence in Washington last week, and that’s winning. The IMF took some comfort from the $40bn of pledges made to its Resilience and Sustainability Trust – designed to help poor countries tackle the climate crisis and other structural challenges – but Ukraine alone is going to need more than that.

Every finance minister and central bank governor knows that the war is a catastrophe for the global economy and the costs will mount the longer it goes on. It’s easy to see what defeat looks like: stagflation and falling living standards in the developed parts of the world; hunger, food riots and debt defaults in the poorer parts.

It is harder to see what victory looks like, other than a pyrrhic one. An immediate ceasefire and Russian withdrawal would lead to lower energy and food prices, reduce inflation and make it easier for central banks to limit the extent of interest rate rises. A prolonged war of attrition is a more likely scenario, and that will lead eventually to weaker demand, a collapse in energy prices and much lower inflation rates.

For now though, the best that the IMF and the World Bank can offer is damage limitation. The outlook is grim and getting grimmer.

Newsletter

Related Articles

Bahama Times
Close
0:00
0:00
Powell: Silicon Valley Bank was an 'outlier'
Donald Trump arrested – Twitter goes wild with doctored pictures
NYPD is setting up barricades outside Manhattan Criminal Court ahead of Trump arrest.
Credit Suisse's Scandalous History Resulted in an Obvious Collapse - It's time for regulators who fail to do their job to be held accountable and serve as an example by being behind bars.
Home Secretary Suella Braverman tours potential migrant housing in Rwanda as asylum deal remains mired in legal challenges
Paris Rioting vs Macron anti democratic law
'Sexual Fantasy' Assignment At US School Outrages Parents
Credit Suisse to borrow $54 billion from Swiss central bank
Russian Hackers Preparing New Cyber Assault Against Ukraine
Jeremy Hunt insists his Budget will get young parents and over-50s back into work
If this was in Tehran, Moscow or Hong Kong
TRUMP: "Standing before you today, I am the only candidate who can make this promise: I will prevent World War III."
Mexican President Claims Mexico is Safer than the U.S.
A brief banking situation report
Lady bites police officer and gets instantly reaction
We are witnessing widespread bank fails and the president just gave a 5 min speech then walked off camera.
Donald Trump's asked by Tucker Carlson question on if the U.S. should support regime change in Russia?.
Silicon Valley Bank exec was Lehman Brothers CFO
In a potential last-ditch effort, HSBC is considering a rescue deal to save Silicon Valley Bank UK from insolvency
BBC Director General, Tim Davie, has apologized, but not resigned, yet, following the disruption of sports programmes over the weekend
Elon Musk Is Planning To Build A Town In Texas For His Employees
The Silicon Valley Bank’s collapse effect is spreading around the world, affecting startup companies across the globe
City officials in Berlin announced on Thursday that all swimmers at public pools will soon be allowed to swim topless
Fitness scam
Market Chaos as USDC Loses Peg to USD after $3.3 Billion Reserves Held by Silicon Valley Bank Closed.
Senator Tom Cotton: If the Mexican Government Won’t Stop Cartels from Killing Americans, Then U.S. Government Should
Banking regulators close SVB, the largest bank failure since the financial crisis
The unelected UK Prime Minister Rishi Sunak, an immigrant himself, defends new controversial crackdown on illegal migration
Man’s penis amputated by mistake after he’s wrongly diagnosed with a tumour
In a major snub to Downing Street's Silicon Valley dreams, UK chip giant Arm has dealt a serious blow to the government's economic strategy by opting for a US listing
It's the question on everyone's lips: could a four-day workweek be the future of employment?
Is Gold the Ultimate Safe Haven Asset in Times of Uncertainty?
Spain officials quit over trains that were too wide for tunnels...
Don Lemon, a CNN anchor, has provided a list of five areas that he believes the black community needs to address.
Hello. Here is our news digest from London.
Corruption and Influence Buying Uncovered in International Mainstream Media: Investigation Reveals Growing Disinformation Mercenaries
Givenchy Store in New York Robbed of $50,000 in Merchandise
European MP Clare Daly condemns US attack on Nord Stream
Former U.S. President Carter will spend his remaining time at home and receive hospice care instead of medication
Tucker Carlson called Trump a 'demonic force'
US Joins 15 NATO Nations in Largest Space Data Collection Initiative in History
White House: No ETs over the United States
U.S. Jet Shoots Down Flying Object Over Canada
Being a Tiktoker might be expensive…
SpaceX, the private space exploration company, made a significant breakthrough in their mission to reach space.
China's top tech firms, including Alibaba, Tencent, Baidu, NetEase, and JD.com, are developing their own versions of Open AI's AI-powered chatbot, ChatGPT
This shocking picture, showing how terrible is the results of the earthquake in Turkey
President Joe Biden delivered the 2023 State of the Union Address , in order to help Americans that missed the 2022 speech, do not have internet, and suffer from short memory.
The desk of King Carlos Alberto of Sardinia has many secret compartments
Today's news from Britain - 9th February 2023
×