A sombre World Bank forecast

Summary: 2023 promises to be a very difficult year for many MENA countries with only the Gulf states escaping the long shadow of a deep economic slowdown.

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  1. As I noted in yesterday’s Newsletter, among those who have effectively pre-empted the news yesterday from Davos that the IMF is in the process of upgrading its economic forecasts for the year is the FT’s Chris Giles who, as early as 6 January, wrote that “2023 economic performance won’t be as bad as most economists are saying”. Mr Giles also acknowledges that there are still certainly significant downside risks to this call; nevertheless, he is now far from alone in reckoning that much of the forecasting to date for 2023 may now turn out to be somewhat on the pessimistic side.

    Even taking this into account, as Martin Wolf writes in today’s FT on a subject which, as a resident of Zambia, is very close to my heart:

    “The shocks of the past three years have hit low and lower-middle income developing countries hard…. But the damage does not just lie in the past. It is lying in wait in the future. The world’s poorest countries, which contain a large proportion of the world’s poorest people, are threatened by a lost decade. That would be a human catastrophe and a huge moral failing. It would affect all our futures, especially those of Europeans, being so close to some of the worst hit countries. Something must be done, starting with tackling the debt crisis that is now looming.”

    He notes too that, notwithstanding an impending upgrade in its forecast, the IMF reckons that “about 15 per cent of low-income countries are already in debt distress and an additional 45 per cent are at high risk of debt distress. Among emerging markets, about 25 per cent are at high risk and facing default-like borrowing spreads.” This certainly includes a number of MENA countries.

    As I have written and said in a number of other fora, the G20 Common Framework for debt rescheduling is all well and good; but it is no more than a framework and has yet to put into practice to the point of an agreement with a debtor nation being finalised. Yes, as Mr Wolf points out, reaching such an agreement is more complicated these days than it was in the 1980s and 1990s because of non-Paris Club countries being among creditor nations (notably China which, through one body or another, accounts for roughly 60% of Africa’s sovereign debt) and, of course, a good deal of private sector credit also being at stake. However, progress is being made – not least thanks to a constructive approach being adopted in Beijing as I noted during a presentation to the Berne Union in November – and hopefully we should soon have a restructuring agreement finalised which will offer a template – and precedent – for future negotiations from which at least some stressed MENA economies may benefit. This would at least be a first step in a positive direction.

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