The chief economist of the World Bank, Indermit Gill, cautioned on Wednesday that the potential rise in interest rates may pose challenges for nations already grappling with debt issues.
Major central banks, including the US Federal Reserve and the European Central Banks, have initiated rate hikes while cautioning that they may need to maintain higher rates for an extended duration to tackle heightened inflation.
The International Monetary Fund (IMF) released a statement on Tuesday asserting that the global economy is holding its ground, despite the enduring impact of COVID, the Ukrainian war, and a cost-of-living crisis. However, it’s not racing ahead; it’s “limping.”
‘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.
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‘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 noted that there is “no doubt” that inflation is abating, but he warned that interest rates are likely to remain at elevated levels for a longer period.
‘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.