Development in a time of upheaval – Annual Meetings 2021 positioning speech by World Bank Group President David Malpass
By David Malpass
It’s even more special to be here in Sudan’s Friendship Hall at this historic time. Over the past few years, you have made a tremendous effort to put people on a forward path, amid very adverse conditions. Two years ago, Sudan’s transitional government inherited a deeply damaged economy and society that had suffered decades of conflict and isolation. Even as the people resolved to break with the past, Sudan faced extraordinary headwinds: from the COVID-19 pandemic, a locust plague, unprecedented floods, and an inflow of refugees escaping conflict from across the border.
Yet the country pressed forward with bold reforms, re-engaging with the international community, clearing World Bank arrears with the help of a US bridge loan, and in June reaching the decision point for the Heavily Indebted Poor Countries (HIPC) initiative. I welcome Sudan’s progress in macroeconomic stabilization, including arrears clearance, unification of its exchange rate, slowing inflation, fewer shortages, and removal of fuel subsidies.
“Yet the country pressed forward with bold reforms, re-engaging with the international community, clearing World Bank arrears with the help of a US bridge loan, and in June reaching the decision point for the Heavily Indebted Poor Countries (HIPC) initiative. While there is much work ahead, I commend the Sudanese authorities, civil and military, for their efforts and achievements in working together toward a country that is unified, tolerant, and can deliver a better future for all of its citizens. It’s critical to avoid political slippages because there is no development without peace and stability. I would also like to acknowledge the remarkable resilience of the Sudanese people – your drive to build a better Sudan despite the challenges is truly inspiring.”
While there is much work ahead, I commend the Sudanese authorities, civil and military, for their efforts and achievements in working together toward a country that is unified, tolerant, and can deliver a better future for all of its citizens. It’s critical to avoid political slippages because there is no development without peace and stability. I would also like to acknowledge the remarkable resilience of the Sudanese people – your drive to build a better Sudan despite the challenges is truly inspiring.
An unprecedented crisis
These are extraordinarily difficult times for Sudan, Africa, and billions of people around the world. Reversals in development threaten people’s lives, jobs, livelihoods, and sustenance. In many places around the world, poverty is rising, living standards and literacy rates are falling, and past gains on gender equality, nutrition, and health are sliding backwards. For some countries, the debt burden was unsustainable before the crisis and is getting worse.
Rather than gaining ground, the poor are being left behind in a global tragedy of inequality. This drastic narrowing of economic and social progress is creating a time of upheaval in economics, politics, and geopolitical relationships. While some advanced economies are providing trillions of dollars in spending programs and central bank asset purchases, low-income countries are facing high inflation, too few jobs, a shortage of vaccines and food, and the high cost of adapting to climate challenges that they did not create.
In this troubling time of upheaval, the challenge for people – and for the development community – is to shorten the crisis, resume development, and lay a strong foundation for a future that is more prosperous and better prepared for disasters like COVID-19.
To combat the reversals in development, we will need strong new approaches suited for these very challenging times. We need to focus our efforts more, set clear priorities by measuring what works and what doesn’t, and rapidly scale up successes.
Turning around the reversal in development
The COVID-19 crisis has resulted in increased poverty rates again after decades of steady decline. It has pushed nearly 100 million people into extreme poverty, with several hundred million more becoming poor – many of them in middle-income countries. Human capital accumulation stalled, with most schools closing for months, even years; and some have still not reopened.
The COVID-19 crisis has resulted in increased poverty rates again after decades of steady decline. It has pushed nearly 100 million people into extreme poverty, with several hundred million more becoming poor, many of them in middle-income countries
The crisis also imposed a heavy toll on firms and governments. Business closures skyrocketed, and many firms that remained active are now overindebted or in arrears. Governments have run large fiscal deficits, often pushing public debt to dangerously high levels that require especially careful investment decisions by both the public and private sectors.
And yet, the crisis has also brought unprecedented transformation. We see a surge in the number of newly established firms. Venture capital has exploded, and innovative outfits are proliferating. We see that sectors such as information technology, logistics, and finance, all with heavy digital components, are surging in both advanced economies and developing countries.
This digital revolution not only means faster growth in the IT-based sectors: it offers the chance to transform other sectors such as education, health, and even agriculture. Along the way, it will reduce the control of the vested interests that thwart competition – the COVID-19 crisis may have jump-started the creative destruction that is the engine of economic growth.
Fostering change while remaining focused on poverty reduction
The Spanish Flu of 1918-20 brought havoc and death comparable to the COVID-19 crisis. Yet, it was not followed by a lost decade, but rather by the Roaring Twenties. That was a time of extremely rapid economic growth – but also a time when social inequality widened, and dangerous financial vulnerabilities built up, culminating in the prolonged great depression.
The question for the international community is: what should we do to boost growth that is inclusive, broad-based, and sustainable, and avoid a lost decade for development?
It might be tempting to say: let’s stay the course and redouble our pre-crisis approach. Given the challenges of demographics, climate, disease, and debt, this clearly won’t be enough. And on the positive side, given advances in technology, communications, innovation, and cooperation, it doesn’t have to be enough – we aren’t limited to pre-crisis approaches.
We can – and must – aspire to do more in two ways: First, we need a stronger focus on the key priorities, with clarity on how we approach and measure them. For example, one global priority is to reduce greenhouse gas emissions, which requires prioritizing the major emitters and measuring the reductions in a clear and transparent manner.
First, we need a stronger focus on the key priorities, with clarity on how we approach and measure them…And second, we need much bigger scale to achieve impact.”
And second, we need much bigger scale to achieve impact. We need education, nutrition and vaccination programs that reach hundreds of millions of children. We need digital cash transfer programs that can provide necessary resources to billions of people in the next crisis. In response to climate change, we need thousands of large public-private projects that combine the world’s resources – from governments, MDBs, foundations, private investors, and the buyers of carbon credits – in order to reduce carbon emissions and increase electricity access. And we need thousands more projects that help people adapt to climate change in ways that will save lives.
The World Bank Group remains committed to alleviating poverty and boosting shared prosperity in our client countries – from people in the poorest countries to those in middle-income countries who are being left behind. This involves creating chances for everyone to benefit from the digital revolution and requires empowering women and protecting girls to offset deeply rooted sources of disadvantage.
Major policy reforms may be difficult, with economies barely emerging from the crisis and many citizens completely left out of the recovery. To resume progress on development, a high immediate priority is to secure access to vaccines and accelerate their deployment. In addition, there are four key focus areas where determined action should make a difference.
First, achieving economic stability. Many developing countries have made extraordinary efforts to support their people and keep economic activity going during the pandemic. Many have gone beyond what they could afford, especially as debt in developing economies was at record highs when the pandemic hit. As of mid-2021, over half of IDA countries – the world’ poorest countries – are in external debt distress or at high risk of it. This situation could worsen if commodity prices are volatile, interest rates increase, or investors lose confidence in emerging markets.
Many have gone beyond what they could afford, especially as debt in developing economies was at record highs when the pandemic hit.”
When the debt service suspension initiative – or DSSI – expires at the end of this year, low-income countries that resume debt service payments will see their fiscal space shrink, limiting their ability to purchase vaccines and finance other priority expenditures. It’s time to pursue a gradual and people-oriented fiscal consolidation, and restructure unsustainable debt. Enhanced and accelerated implementation of the Common Framework will be critical on this front. We need global cooperation, including private sector participation, to provide debt relief to the world’s poorest countries and fund growth-enhancing investments.
In Sudan, for example, global cooperation that included the US, France and the UK helped the country clear its arrears with the World Bank, IMF and other IFIs, making possible more than $50 billion in debt relief in what will be the largest HIPC initiative ever.
“In Sudan, for example, global cooperation that included the US, France and the UK helped the country clear its arrears with the World Bank, IMF and other IFIs, making possible more than $50 billion in debt relief in what will be the largest HIPC initiative ever
“It’s time to pursue a gradual and people-oriented fiscal consolidation and restructure unsustainable debt. Enhanced and accelerated implementation of the Common Framework will be critical on this front
It’s critical that countries eliminate wasteful public expenditures, make service delivery more efficient, and reallocate public resources to their most productive uses. This is also a time for proactive debt management to reprofile payments while international interest rates remain low. There need to be concrete steps to improve the transparency of debt contracts, increase accountability, and ensure decisions draw on comprehensive information. Lower-income countries need to prioritize concessional financing and avoid the high interest rate financing that has become increasingly problematic. Focusing this agenda for each country and measuring the progress will be critical.
This is also a time for proactive debt management to reprofile payments while international interest rates remain low. There need to be concrete steps to improve the transparency of debt contracts, increase accountability and ensure decisions draw on comprehensive information. Lower-income countries need to prioritize concessional financing and avoid the high interest rate financing that has become increasingly problematic. Focusing this agenda for each country and measuring the progress will be critical
Second, leveraging the digital revolution. The faster adoption of digital solutions can radically expand access to finance and create new economic opportunities. It can increase competition in product markets and enable people to sell services online, connecting them to national and global markets. Supporting this transformation requires many actions at scale: investing in digital infrastructure, eliminating monopolies in the telecom sector, providing national IDs, and creating an enabling regulatory environment.
The potential is clear throughout the developing world, including Africa. In Sudan, for instance, eight out of 10 citizens own mobile phones—and a similar proportion has a national ID.
The digital revolution can also transform the public sector. For example, it allows a radical rethink of safety nets systems. Across the world we are seeing programs move from in-kind and cash delivery to digital delivery, direct to people’s bank accounts or visible on their phones. Similarly, in both the formal and informal sectors, new payment systems enable daily purchases through phones, using QR codes and other technologies. Kenya and many other African countries have extensive experience on this.
In many middle-income countries, shifting to e-government can facilitate access to public services for households and firms. E-procurement can reduce opportunities for corruption, while enhancing the government’s transparency and efficiency.
Third, making development greener and sustainable. The international community is strongly committed to slowing the increase in atmospheric carbon and to reducing climate impacts on the most vulnerable. A key step is to stop the creation of new coal-fired plants, decommission existing ones, and substitute for them with cleaner sources of electricity. We should support countries in a “just” transition, which includes taking care of the workers affected. The transition is increasingly feasible as technological innovations bring down the cost of clean energy. Recognizing the massive expense of this undertaking, efforts need to focus on the most impactful transitions.
This is also the time to reinvigorate often-stalled power sector reforms. Energy subsidies are expensive and distortive, while removing them needs to be done in ways that solve underlying inefficiencies and increase access. Aiming for clean, affordable energy requires competition in electricity generation and distribution, as well as a truly independent regulator. Sudan’s commitment to electricity sector reform is important in this respect.
Transportation is another major source of emissions. With more urbanization expected in developing countries, infrastructure and design of cities can make an enormous difference. Instead of sprawling metropolitan cities where commuters spend hours on the road, governments can aim for more compact cities with efficient and clean public transportation systems.
In the climate change efforts, both mitigation and adaptation, and the development effort more broadly, we need to prioritize and focus efforts for the largest impact per dollar spent and look for solutions that are rapidly scalable.
And fourth, investing in people. The crisis shows that strong, effective health systems need to be at the forefront of preparing countries for future shocks. COVID-19 vaccine access and deployment are acute priorities now, while other vaccinations are also critical to keep other deadly illnesses in check.
Strengthening education and health systems takes more than just providing budgetary resources in an efficient and prioritized way. For example, aligning incentives for teachers and health care providers – public or private – with the needs of the people they serve is important. And finding scalable solutions to enhance health care and improve the quality of education, including through distance learning, is also critical.
Nowhere is human capital accumulation more important than in conflict-affected countries, where a majority of poor people live today. Assisting refugees and host communities is a key priority. Security is essential, but soldiers can’t win the battle of development. Change is more likely to come from small victories won across millions of households over time.
For example, it is at the family and community level that we build the acceptance for women to work outside the home, for all children to be educated, and for the contributions of girls to be recognized. Indeed, educating girls involves more than providing them with skills. It means fostering self-sufficiency and encouraging their aspirations. This is in everyone’s interest. Closing gender gaps offers massive economic returns for developing countries, including the most fragile and conflict-affected.
The contribution of the World Bank Group
None of this will be easy, but the World Bank Group is uniquely endowed and positioned to support countries with the four priorities I have outlined – through finance and know-how for governments, while mobilizing the private sector. We have unmatched experience working with countries, using technical experts across all the key sectors. Most of our staff comes from developing countries, often bringing experience from innovations in development that they helped carry out in their home countries and regions.
Our staff are increasingly decentralized in country offices across the world; we have also scaled up our footprint in fragile and conflict-affected countries. Over the last four years, we nearly doubled our footprint in FCV locations, reaching over 1,200 staff at present.
We are proud of our response to COVID-19, and we thank shareholders for their support. From April 2020 through June 2021, we committed more than $157 billion—the largest crisis response in our history. We have helped countries tackle the health emergency and provided financing for COVID-19 vaccines in 62 countries. We are pleased to partner with COVAX, AVAT, the African Union, and UNICEF on our shared priority to help countries purchase and deploy vaccines. Our support for the poorest countries is at an all-time high, including grants and highly concessional loans to countries eligible to borrow from IDA. While helping countries address the pandemic crisis, we are also working to facilitate development that is green, resilient, and inclusive.
Looking ahead, much more needs to be done to secure a sustained recovery and a better development path for all. The need for COVID-19 vaccines remains massive, and we have financing readily available to keep supporting countries. Low- and middle-income countries face many concurrent challenges. Some are dealing with fragility, as we see in the Horn of Africa and the Sahel. And all need to deliver services effectively, finance resilient infrastructure, embrace digital opportunities, and respond to climate change. With the replenishment of IDA later this year, African heads of state have called for donors to be ambitious in supporting IDA’s critical mission for the poorest countries. IBRD, IFC, and MIGA will also continue to find ways to increase financing and mobilize more resources, including from the private sector.
This unprecedented crisis has set in motion a time of upheaval. The many choices in coming years will determine whether developing countries suffer a lost decade or can usher in rapid growth and economic transformation.
I have outlined huge endeavors: bringing economic stability and growth, leveraging the digital revolution, taking strong climate change action, and investing in people. To succeed requires the active participation of the public and private sectors across countries, civil societies and foundations, indeed the whole international community working together. These efforts require leaders to be ambitious for the prosperity of people. And they require focus and scale throughout our development work.
As I talk to people here in Sudan and see the faces of young people in this hall, I feel optimistic that we will help countries avoid a lost decade. As you walk your journey toward peace, prosperity and national unity, the World Bank Group, along with the rest of international community, are walking alongside you. By working together, we will build a better development path. The history of Sudan is yours to chart.
