World Bank eyes $170b crisis financing as Ukraine war hits global growth

The World Bank President David Malpass on Monday trimmed the growth outlook as the International Monetary Fund voiced concern that the war is causing financial stability risks for the world and poses questions about the longer-term impact on economies and markets



People walk inside a gift shop in central Moscow. The World Bank and IMF member countries will be discussing this week new assistance for Ukraine and expect specific commitments to be announced by a number of donor countries. — AFP file photo
People walk inside a gift shop in central Moscow. The World Bank and IMF member countries will be discussing this week new assistance for Ukraine and expect specific commitments to be announced by a number of donor countries. — AFP file photo
by

Issac John

Published: Tue 19 Apr 2022, 4:45 PM

Last updated: Tue 19 Apr 2022, 4:46 PM

The World Bank has cut its global growth forecast for 2022 by nearly a full percentage point, to 3.2 per cent from 4.1 per cent, and proposed a 15-month crisis financing target of $170 billion to address the economic fallout from Russia’s invasion of Ukraine.

The World Bank President David Malpass on Monday trimmed the growth outlook as the International Monetary Fund voiced concern that the war is causing financial stability risks for the world and poses questions about the longer-term impact on economies and markets.

Malpass said the global lender would address the economic stresses from the war by proposing a new, 15-month crisis financing target of $170 billion, with a goal to commit about $50 billion of this financing over the next three months.

Speaking at a conference on Monday in New York, the World Bank chief said the biggest component of the bank’s growth forecast reduction was a 4.1 per cent contraction in the Europe and Central Asia region -- comprising Ukraine, Russia, and surrounding countries. Forecasts also are being cut for advanced and many developing economies because of spikes in food and energy prices caused by war-related supply disruptions, Malpass said.

The International Monetary Fund also cut its global growth forecast on Monday to 3.6 per cent in 2022 and 2023 from an estimated 6.1 per cent in 2021, arguing that the war sets back global recovery and contribute to a significant slowdown in worldwide growth this year.

“We’re preparing for a continued crisis response, given the multiple crises,” Malpass said. “Over the next few weeks, I expect to discuss with our board, a new 15-month crisis response envelope of around $170 billion to cover April 2022 through June 2023.”

The plan follows on from a World Bank $160 billion Covid-19 financing program, of which Malpass said $157 billion was committed through June 2021. The financing partly will support countries that have taken in refugees from Ukraine and will also help address problems in countries affected by food shortages.

The World Bank and IMF member countries will be discussing this week new assistance for Ukraine and expect specific commitments to be announced by a number of donor countries.

Tobias Adrian, financial counsellor and director of the IMF’s Monetary and Capital Markets Department, said the Ukraine war, amid an already slowing recovery from the pandemic, “is set to test the resilience of financial markets and poses a threat to financial stability. As discussed in our latest Global Financial Stability Report, Ukraine and Russia face the most pressing risks.”

Amid rising inflation, expected interest-rate hikes have led to a notable tightening in advanced economies in the weeks following the Russian invasion of Ukraine, Adrian noted. “Even with that tightening, financial conditions are close to historical averages, and real rates remain accommodative in most countries. Tighter financial conditions help to slow demand, as well as to prevent an unmooring of inflation expectations.”

“Extraordinary financial support measures may be needed to ease balance sheet pressures, but these would add to debt vulnerabilities down the road.

In the near term, central banks should take decisive action to prevent inflation from becoming entrenched and keep expectations of future price increases in check. Interest rates might have to rise beyond what is currently priced in markets to get inflation back to target in a timely manner,” the IMF officials said.

— issacjohn@khaleejtimes.com


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