The World Bank is preparing a $1.5-billion funding package to support continuation of essential government services in Ukraine following Russia’s invasion, World Bank president David Malpass announced in Warsaw, Poland, on April 12.
The financing was enabled one day prior to the International Development Agency’s (IDA’s) IDA19 support of $1-billion to Ukraine and $100-million to Moldova by IDA donor and recipient countries.
Malpass explained that, since the start of the invasion, the World Bank has provided fast-disbursing financial support to Ukraine to help the government provide critical services to people, including wages for hospital workers, pensions for the elderly, and social programmes for the vulnerable.
Moreover, through the International Finance Corporation, the World Bank has provided immediate working capital for companies providing supplies to Ukraine.
“We will be ready to help Ukraine with reconstruction when the time comes. In the meantime, we are working to help Ukrainian refugees as they plan their return home; help communities as they absorb Ukrainians; and help the many millions of internally displaced persons in Ukraine who have lost their homes and livelihoods,” he said.
Malpass added that the World Bank was in the process of analysing the global impacts of the war in Ukraine, including the spike in food and energy prices, and was preparing a surge crisis response that would provide focused support for developing countries.
“The violence is unfortunately not confined to Ukraine. The trend toward insecurity is deeply concerning,” he said.
Currently, 39 out of the World Bank’s 189 member countries are experiencing open conflict situations or remain “worryingly fragile”, Malpass noted, adding that the number of people living in conflict areas nearly doubled between 2007 and 2020.
“Today, in the Middle East and North Africa, one in every five people live in an area affected by conflict. This unravelling of security has brought a surge in the number of refugees, which more than doubled over the last decade to exceed 30-million refugees in 2020.
“The war in Ukraine has already displaced a further ten-million people from their homes, pushing more than four-million people – primarily women and children – into neighbouring countries, most of them to Poland and Romania,” Malpass said.
In addition to the political instability and conflict, Malpass lamented the simultaneous impact of Covid-19 as well.
“We are still suffering the health, economic and social setbacks of a global pandemic and economic shutdowns. Millions of lives have been lost and millions more are suffering amid the massive reversals in development that hit the poor particularly hard,” he said.
Malpass listed some of the knock-on effects of the pandemic and the consequent lockdown measures.
“Since the outbreak of Covid-19, violence against women and girls has intensified. Global indicators on food, nutrition and health have worsened. And children lost more than a year of education due to school closures, with 1.6-billion children out of school globally at the peak of lockdowns, reversing a full decade of gains in human capital,” Malpass said.
He noted that never before in history have so many countries experienced a recession at once, suffering lost capital, jobs and livelihoods. Meanwhile, inflation continues to accelerate, reducing the real incomes of households globally, especially among lower-income groups.
“The extraordinary monetary and fiscal policies that advanced economies have been implementing to boost their demand, combined with supply constraints and disruptions, have fuelled price increases and have worsened inequality around the globe,” Malpass said.
He explained that one of the measures that captures the growing concern of inflation and inequality was the stagnation in real median income across much of the world. Another measure was the likelihood that poverty would continue to increase this year as inflation, currency depreciation and high food prices hit home.
“Food price spikes hit everyone and are devastating for the poorest and most vulnerable. For every one percentage point increase in food prices, ten-million people are expected to fall into extreme poverty.
“The rich can afford suddenly expensive staples, but the poor cannot. Malnutrition is expected to grow, and its effects will be the hardest to reverse in children,” Malpass lamented.
He said global economic trends were not encouraging.
“Prior to the war in Ukraine, the recovery in 2022 was already losing momentum due to rising inflation and lingering supply bottlenecks. While advanced economies were expected to return almost to their pre-pandemic growth rates in 2023, developing economies were lagging substantially behind.
“Advanced economies with well-developed social protection systems are cushioning parts of their populations from the damage from inflation and trade blockages, but poorer countries have limited fiscal resources and weaker systems to support those in need,” he said.
Malpass noted that currency depreciations and inflation were hitting the poor hard, causing fast increases in 2022 poverty rates. Adding to the burden, developing country debt has risen sharply to a 50-year high at about 250% of government revenues.
He noted that debt vulnerabilities were particularly acute in low-income countries, where 60% were already experiencing or at high risk of debt distress.
“Most emerging market and developing economies are ill-prepared to face the coming debt shock. Exposures to financial sector risk are opaque at this point, but one measure, the cost of insuring against default in emerging markets, has reached its highest point since the onset of the pandemic,” Malpass noted.
CALLS TO ACTION
Malpass said governments needed to more effectively allocate capital.
He said the problem of inequality and severe concentration of wealth in narrow segments of the global population was worsening, while trillions of dollars of debt and capital were being guided by advanced governments to over-capitalised sectors, harming growth, supply chains, jobs and median incomes in the process.
“The result is deepening inequality through the massive misallocation of global capital away from small businesses, working capital and development. I call on the governments and central banks of the advanced economies to alter fiscal, monetary and financial regulatory policies that are concentrating wealth and income, misallocating capital and fuelling inflation,” Malpass said.
He added that growth and production needed to also be promoted.
“A primary path for global recovery is to create policies, financing and innovation that invite investment inflows, allow the investment base to broaden, and encourage production to increase.
“We need to redouble our growth efforts on public and private sector solutions that provide clean water, dependable electricity, sustainable agriculture, quality education, health emergency preparedness, and digital access,” he said.
Malpass also called for governments to keep markets open. In addition to large increases in diversified energy production, Malpass said countries should also release the most binding restrictions on their imports and exports.
“This is an important step in shortening the crisis and strengthening the recovery. Most of the trade barriers protect the privileged at the expense of the rest of society, worsening inequality,” he noted.
Finally, Malpass called for a renewed commitment to security and stability.
“Durable peace takes constant effort to strengthen institutions, reduce inequality, raise living standards and provide defences. In the alternative, security crises trigger massive increases in poverty and decimate the middle class,” he said.
Much of the action needed to overcome the multiple crises currently under way around the globe would necessarily be at the country level, Malpass concluded.