The World Bank’s chief economist warned Wednesday that interest rate hikes could spell trouble for countries struggling to deal with debt.
The US Federal Reserve, the European Central Banks and others have raised rates and warned that they could remain high longer than expected in order to bring down elevated inflation.
The International Monetary Fund said Tuesday that the world economy remains resilient despite the fallout from Covid, the war in Ukraine and a cost-of-living crisis, but that it was “limping along, not sprinting.”
“In spite of all of these shocks, we have not seen any big economies really get into trouble. But the good news basically ends there,” said World Bank chief economist Indermit Gill.
“The trouble now is that because of the high rates, the high interest rates that you mentioned, growth is slowing down a lot,” he said at a news conference during the IMF-World Bank annual meetings in Marrakesh, Morocco.
Gill recalled that during another long period of high interest rates, in the 1970s, around 24 economies were left bankrupt.
“We should expect this tightening cycle to also take long,” he said. “We should expect some countries to (get) into trouble.”
World Bank President Ajay Banga said there was “no doubt” that inflation has begun to come down but that rates will stay higher for longer.
“That can be a complicated event in many ways for investments as well as to people who over the years have got used to a low interest rate environment,” Banga said.
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