Rich countries worsening the debt crisis: World Bank chief economist

Much of the messiness in the global economy these days can be chalked up to policy mistakes in the most advanced economies — but the effects are spilling over into lower-income countries, the World Bank’s chief economist told Devex. Sub-Saharan Africa is a particular area of concern. Progress on fighting poverty there “is going to be very, very slow,” Indermit Gill said in an interview during the World Bank-International Monetary Fund Spring Meetings this week in Washington, D.C., as he ran between appointments. He argues the bank needs to step up its intermediary role in getting capital from the wealthiest countries to lower-income markets in order to spur investment and drive the growth of the future, including in the green economy. “This was what we were always supposed to do. We were supposed to intermediate capital between the developed countries’ financial markets and developing economies.” --— Indermit Gill, chief economist, World Bank Gill’s perch as the World Bank’s chief economist gives him a 360-degree view of the world economy, based on the bank’s vast data and its latest research. Gill is a well-regarded economist focused on development challenges and famously came up with the phrase “middle-income trap” to explain the challenges of many countries stuck in their development. Gill placed a lot of the blame for high inflation and lower growth on the world’s largest economies, including the United States, Europe, and China. “The reason why we are in the state that we're in is largely driven by policy missteps in advanced economies, not in emerging market economies,” Gill said. Those missteps include excessive and nontargeted economic stimulus actions in the wake of the COVID-19 pandemic that led to inflation — which they are now fighting with interest rate hikes. But many lower-income countries are now at the mercy of those policy choices. Those interest rate hikes and other moves “may end up tipping some countries into debt distress,” he warned. But the world is on the “cusp of a change,” where good policies in key emerging markets will help guide them past the current crisis, despite the headwinds coming from the wealthy world. But many countries in Africa are set to continue to struggle, Gill said. “There are two parts of the world that have extreme poverty,” he said. “One is South Asia, where we would expect it to go down. The other one is sub-Saharan Africa. We would expect it not to go down quickly.” Gill argues that the World Bank has to play a key role in driving more capital and investments into low- and middle-income countries, including through spurring private sector involvement. He sees great potential in the lender helping to grow green economic activities around the world, including wind turbines, solar, and battery storage. “Right now the problem is that we talk in very general terms about private capital mobilization. But you have to have very specific conditions in these countries, where you have an improved investment climate. And organizations like the World Bank should be intermediating that,” he said. “This was what we were always supposed to do. We were supposed to intermediate capital between the developed countries’ financial markets and developing economies,” he added. The catch, he warns, is that unless growth picks up again, “all of these things are pipe dreams.”