World Bank President David Malpass believes “advanced economies” are devouring the world’s capital to pay for their national debt, an issue that he said the international community needs to address.
Malpass told radio host John Catsimatidis on his show “The Cats Roundtable” on WABC 770 AM that he is frustrated that developing countries are experiencing “grave difficulty.”
“It’s a crisis-facing development, because the resources of the world are concentrating towards the advanced economies,” Malpass said. “Think of all the money in the world that has to go to paying the national debt.”
“The U.S. national debt, but also Japan’s and Europe’s national debt,” Malpass added.
He continued, saying a “giant amount of energy” of the world is needed just to pay the interest on advanced countries’ national debt, and interest rates are rising.
“So if you think of it from the standpoint of a person living in a poor country, there’s not enough capital. Not enough fertilizer,” he said, adding that “for many of them, they don’t have electricity or water or food.”
“That’s a big challenge that I think the world should pay more attention to,” Malpass added.
He explained that China has been increasing its lending to developing countries in the past 10 to 15 years, but it has not been transparent on many occasions with contracts that are not disclosed.
Malpass, who also served in the Treasury Department under former President Trump, said this lack of transparency has made restructuring the contracts difficult if a developing country gets into economic trouble.
But, the World Bank has been “pushing hard” to create an improved debt-restructuring process for developing countries so they have a way to get out of debt and “get back on their feet” if the world experiences a crisis like the COVID-19 pandemic or rising interest rates like what is currently happening, he claimed.
The former Trump official added that the world went through a “unique” period of 0 percent interest rates during the height of the pandemic, requiring the international community need to be prepared for a “long workout” of higher rates.
The Federal Reserve has aggressively raised interest rates over the past year to a range of 4.75 to 5 percent as of last month as part of its plan to battle against high inflation.
The Fed is trying to get inflation to fall back under 2 percent from its 6 percent annual rate that it was in February. Inflation has been consistently dropping for months but remains well above the Fed’s target.
Malpass said assets need to be repriced for higher interest rates that are more common, which will take time. He said this will require “good quality work” from the U.S. government and the private sector.
He said advanced economies also need to perform better at using their capital so the rest of the world can have more.
“The population is going up, and the world needs more growth,” he said. “And there have to be better techniques to do that: fiscal policy, monetary policy, tax policy, regulatory policy, I think have to urgently improve.”