World Bank Group President David Malpass recently spoke at the Stanford Institute for Economic Policy Research (SIEPR) and the King Center on Global Development where he addressed the precarious and dangerous threats people in developing countries face due to the lingering effects of COVID-19, the on-going war in Ukraine, global supply chain issues, punishing inflation, climate change and more.

He laid out the current problems in stark terms so we thought it would b constructive to publish outtakes of his talk.

“The World Bank Group’s mission is to alleviate poverty and boost shared prosperity. We leverage shareholder equity and annual contributions to provide grants and make loans to developing countries to help identify and respond to development challenges. Our financing to developing countries has expanded dramatically in recent years, especially for climate-related finance, which reached $31.7 billion in fiscal year 2022. 

Of concern to our mission, our upcoming Poverty and Shared Prosperity report suggests that the deterioration in development progress began well ahead of the COVID-19 pandemic. The report shows that poverty had been steadily declining through the 1990s and 2000s, progress had slowed by 2015, and extreme poverty rose by roughly 70 million when the pandemic hit. The report also shows a 4% decline in global median income, the first decline since our measurements of median income began in 1990. 

Human Consequence of Overlapping Crises

The developing world is facing an extremely challenging near-term outlook shaped by sharply higher food, fertilizer, and energy prices, rising interest rates and credit spreads, currency depreciation, and capital outflows. Under current policies, global energy production may take years to diversify away from Russia, prolonging the stagflation risk discussed in the World Bank’s Global Economic Prospects report from June 2022. 

These shockwaves have hit development at a time when many developing countries are also struggling in other areas: governance and rule of law; debt sustainability; climate adaptation and mitigation; and limited fiscal budgets to counteract the severe reversals in development from the COVID-19 pandemic, including in health and education. 

The human consequence of these overlapping crises is catastrophic. The COVID-19 pandemic – which alone led to over six million deaths – geopolitical conflicts, and extreme weather events have hurt countries and people worldwide, with the poor bearing the brunt, especially women and girls.

Evidence by the World Bank shows that 70% of children in low- and middle-income countries are in learning poverty – which is the share of children who are unable to read or understand a basic text by age 10. COVID-19 worsened the global learning crisis and resulted in the worst shock to education and learning in recorded history. Moreover, new challenges already loom in the form of demographic pressures: by 2030, according to UN population projections, more than 1 in 4 primary-school-age children will live in Sub-Saharan Africa, the region with the highest learning poverty. This indicates that education systems are now further away from reaching quality education for all. 

The recent floods in Pakistan have left over 1,500 people dead. Droughts are taking a toll in the Horn of Africa and in South America, affecting food production and hydropower generation and throwing nine million more people into severe food insecurity across Ethiopia, Kenya, and Somalia alone. Developing countries are being hit by more frequent and more severe climate-related disasters. Man-made greenhouse gas emissions are causing climate change, which in turn is having tragic impacts on development in multiple ways. Both adaptation by countries and people harmed by climate change and mitigation of greenhouse gas emissions are urgently needed. This set of challenges receives the largest share of World Bank Group resources and focus. The World Bank Group has not financed new coal projects since 2010 and has been working actively with developing countries and partners in the global community to reverse the trend toward increased use of high-carbon emission fuels. Yet due to Russia’s invasion of Ukraine, and limited and high-priced natural gas supplies, coal-fired power plants are seeing their closures postponed across the world, and coal mining has accelerated. 

Facing these overlapping crises, a pressing danger for the developing world is that the sharp slowdown in global growth deepens into a global recession, as the World Bank discussed in a September report. Global GDP per capita in 2021 barely exceeded its pre-pandemic level, but many developing countries have not reached their pre-pandemic per capita income levels. The U.S. has experienced contractions in GDP in the first two quarters of 2022. The sharp decline in asset prices worldwide has consequences for weakened corporate and pension balance sheets and could dampen new investment. China’s economy has slowed sharply due to COVID-19-related lockdowns, pushing the World Bank’s 2022 forecast for China down to 2.8% from 5% in April. Europe is confronting the sudden spike in energy prices caused by Russia’s invasion of Ukraine and market rigidities. The weakness of the euro and high inflation increase the likelihood of a European recession and further constrain the eurozone’s longer-term growth outlook.

Looking beyond this sharp cyclical downturn, developing countries face the risk that these trends in advanced economies –inflation, slow growth, lower productivity, the drain on global energy supplies, and higher interest rates – persist beyond 2023. If current fiscal and monetary policies become the new “normal,” it implies heavy absorption of global capital by advanced governments, prolonging the under-investment in developing countries and hampering future growth. This was the subject of my Churchill Symposium remarks at Zurich University in May, which focused on stagflation, capital misallocation, and the cost of Europe’s energy realignment. 

The macroeconomic challenges facing development are consequential and are probably worsening. I’ll return to that in a moment, but I want to take note that there are many other aspects of the development crisis that also require global efforts. These include the devastating flow of arms into Africa, the consequent political fragility, adapting to climate change, mitigating greenhouse gas emissions, the violence and deprivation facing women and girls, and the severe reversals in education, health, and debt sustainability that I mentioned earlier. The World Bank Group works extensively in each of these areas, and I’d like to take a moment to highlight this work and thank our staff. 

To combat the crises, the World Bank Group responded with unprecedented urgency, scale, and impact, deploying a record $115 billion in financing in FY22. We have committed consecutive surges of financing, analytical support, and policy advice, first in response to COVID-19, and now to address the food and energy crisis, the war in Ukraine, and its spillover effects. The war inflicted by Russia has brought loss of lives and destruction. The World Bank has mobilized $13 billion in emergency financing from bilateral and development partners, with about $11 billion already disbursed through our projects and trust funds. 

To combat climate change, the World Bank Group is by far the largest single funder of climate-related finance in the developing world and a leader on climate diagnostics, methane emission reduction, and innovative climate financing. We are also the largest external funder of education in developing countries, much of it through the grants and highly concessional loans offered by IDA, the World Bank’s fund for the poorest 75 countries, and related trust funds. The health challenge is similarly immense, including the need for a wide range of life-saving vaccinations and preparedness for future health crises. With strong U.S. support and leadership, we have just launched a new trust fund for Pandemic Prevention, Preparedness, and Response (PPR) that will assess and strengthen health preparedness throughout the developing world. Each of these challenges and crises require urgent global attention and resources.”