WB: US default risk adds to global economic slowdown problems

The President of the World Bank, David Malpasssaid on Friday that the risk of a US default is adding to the problems facing the slowing global economy, as rising rates and high debt levels are already holding back the investments needed to boost higher production.

Those responsible for Finance Group of Seven (G7)meeting in Japan, discussed the “great importance” to raise the US debt limit and avoid the negative repercussions of a possible US government default for the first time in history.

“It is clear that a crisis in the largest economy in the world would be bad for everyone”, he told Reuters on the sidelines of the G7 meeting. “The repercussions would be dire not to get it.”

The secretary of Treasure American Janet Yellen reiterated Friday that failure by Congress to raise the debt limit to $31.4 trillion would result in economic and financial catastrophe, and urged the Republican-controlled House of Representatives to agree to raising the limit. of federal debt.

malpasswho will be in charge of the WB until June 2, stated that during the meetings of the G7 the need to boost productivity and growth, as well as address the high debt overhang faced by an increasing number of countries, had been discussed.

Global growth will fall below 2% in 2023 and could remain low for several years. One of the big challenges is that advanced economies have taken on so much debt that a lot of capital will be needed to pay it off, leaving very little investment for developing countries.

“And that means a prolonged period of slow growth. It is a great concern, especially for the inhabitants of the poorest countries“, he claimed. “The world is in a tense moment, but I think the financial systems are holding up. The big question is growth, how to achieve more growth and productivity”.

malpass He affirmed that it is urgent to advance in the restructuring of the debt of the countries that cannot pay it. However, he cited the progress of Ghana, the fourth country to seek relief under the Group of 20 Common Framework.

He said it was frustrating to see slow progress on the sovereign debt restructuring front, noting how difficult it was for countries to attract investment until debt restructuring agreements were finalized and implemented.

malpass He noted that some progress had been made during the first two meetings of a new Global Roundtable on Sovereign Debt, which includes China – the world’s largest sovereign creditor – and private sector creditors. A third meeting is scheduled for June.

“Achieving these debt reductions is very important for poor countries that have hit the wall in terms of unsustainable debt. It is important to do it as soon as possible”.

Source: Reuters