The two big problems facing global growth are debt and inflation, the World Bank said on Monday.
The President, David Malpass made the remark at Spring Meetings 2022 Media Roundtable.
He said due to high debt and deficit levels, countries are under severe financial stress with sixty per cent of low-income ones in debt distress or at high risk.
On steps to fix the situation, Malpass suggested the establishment of a timeline for forming creditors’ committees and suspension of debt service payments and penalty interest.
Others are expanding eligibility, using a simple rule so that it can be evaluated and enforced and engaging commercial creditors at the beginning of the process.
On inflation, Malpass said policies need to be adjusted to enhance supply, not just increasing demand.
The chief urged governments and private sectors to ensure that supply will increase and that their policies will foster currency stability to bring down inflation and increase growth rates.
The World Bank advised Central Banks to use more tools under current policies.
“The inequality gap has widened materially, with wealth and income concentrating in narrow segments of the global population.
“Interest rate hikes, if that’s the primary tool, will add to the inequality challenge that the world is facing.
“Central banks can use more of their tools, not just interest rates. Capital is being misallocated now.”
The tools include: changing the duration of their portfolio as it would be helpful to shorten it; encouraging supply through their regulatory policies, and providing forward guidance that fosters currency stability.