More work should be done to escape pandemic's ravages: World Bank president
Malpass underscores need to support poorer countries in exclusive interview
The head of the World Bank, who has a better line of sight on the global economy than most of us, isn't ready to declare victory over the COVID-19 crisis, even though vaccines have arrived sooner than many expected.
“We aren't out of the woods in terms of 2021,” David Malpass said in a telephone interview on Tuesday. “Some of the advanced economies are recovering and China is growing. But for many of the developing countries, conditions are still bad and not getting better.”
The World Bank doesn't get much attention in Canada during normal times, never mind during a pandemic that has naturally caused just about everyone to turn inward. But when the Washington, D.c.-based institution offers an interview with its president, you take it, since the strength of Canada's recovery will be dictated to some extent on how the rest of the world is doing.
“So far, household spending has led the way,” Bank of Canada governor Tiff Macklem said in a speech on Tuesday. “But for the economy to fully recover, it needs to be firing on more than one cylinder. To be sustainable, the recovery must broaden to include exports and, with this, business investment.”
Macklem's speech focused on what companies should do to take advantage of resurgent export demand, whenever it comes. He urged businesses to invest in equipment and talent so they can fully exploit an array of preferential trade agreements in North America, Asia and Europe. He also nudged executives to identify trading hubs in order to tap the supply chains running in and out of them.
“Global companies invest in the resilience of their supply chains through diversification of suppliers or production locations, and through digitization and automation,” said the former dean of the University of Toronto's Rotman School of Management. “Canadian companies need to seize these opportunities to be part of the solution.”
Many of those supply chains run through the countries that take up most of Malpass's attention. The World Bank estimates the coronavirus pandemic will push between 88 million and
115 million people into extreme poverty, which the institution defines as trying to live on less than about $2.40 per day in Canadian dollars at current exchange rates. The value of World Bank loans has surged about 65 per cent this year, as Malpass fights the first increase in global poverty since 1998.
Canadians and other rich-country residents will spend the next several months bickering over who should be at the front of the line to get jabbed, but the poorest countries will continue to go without, ensuring their health systems will remain strained. Their export industries will struggle to recover and tourism will continue to suffer. Remittances, an important source of income for developing countries, will stay depressed until the economies of richer countries are fully mended.
That day is at least a year away, if not longer. The Bank of Canada has said it intends to keep the benchmark interest rate pinned near zero until 2023, because that's how long its models say it will take for this country's economy to get back to where it was before the crisis.
“This was a very deep recession and it's going to take some years, really, to recover from that,” said Malpass, a former Wall Street economist who was serving at the U.S. treasury department when President Donald Trump nominated him to lead the World Bank last year. “For people who were already on the brink of poverty, their number of years in poverty ... is going to go on for quite some time.”
That's reason enough for a country such as Canada to set aside some of its emergency spending to aid poorer countries. Macklem's latest remarks also show why international development spending should continue, even as federal debt surges in response to the crisis at home.
Canada's economic performance after the Great Recession was lacklustre because exports and business investment were weak.
That was mostly our own fault: We conducted most of our trade with places hardest hit by the recession, and our companies were uncompetitive. Macklem said there is reason to think Canada will do better in recovering from the COVID-19 recession, which means we have an interest in doing our part to make sure that recovery occurs.
“A goal for the world is to recognize that there are vulnerable people and there should be some prioritization that looks at the global needs of people,” Malpass said. “We don't have to have 100 per cent vaccination of one group and zero per cent vaccination of other countries. Finding some kind of fair distribution of vaccines is important for everyone.”
To that end, Prime Minister Justin Trudeau's government this week pledged almost $500 million to help underwrite COVID-19 treatments in poorer countries. Canada probably should do more, but that's no sure thing, given we're nowhere near as generous as we think we are. Canada's official development assistance was worth barely 0.3 per cent of gross national income in 2019, well short of the United Nations' target of 0.7 per cent, according to the Organisation of Economic Co-operation and Development.
Canada might also get louder about the need to reduce the debt of the most vulnerable countries. The Group of 20 economic powers have provided some relief, but the private creditors those governments oversee have been less co-operative, said Malpass, who is pushing for a debt-reduction program by early 2021.
“There will be several countries that need deep debt reduction in order to allow their recovery,” he said. “The earlier that the global system can find that process to deep debt reduction, the better, because delay works against a solution. We're looking to move quickly for those countries that are in high, high risk of debt distress.”