Ignazio Visco: Inflation, monetary policy and inequalities. Some
thoughts
Statement by Mr Ignazio Visco, Governor of the Bank of Italy and Governor of the
Constituency of Albania, Greece, Italy, Malta, Portugal, San Marino and Timor-Leste, at
the 107th Meeting of the Development Committee (Joint Ministerial Committee of the
Boards of Governors of the Bank and the Fund on the Transfer of Real Resources to
Developing Countries), Washington DC, 12 April 2023.
* * *
After more than a year, the world continues to be shaken by the unlawful and unjustified
Russian aggression to Ukraine. We strongly support and admire the Ukrainian people
for their spirited and courageous resistance, and we commend the World Bank Group
(WBG) for its continued support to Ukraine, including through the careful assessment of
damage and needs.
The global economy has shown more resilience than expected. Available indicators
suggest that the slowdown, though substantial, is smaller than anticipated until a few
months ago. Still, we are dealing with an extremely uncertain environment, and growth
and inflation continue to be adversely affected by the war.
Recent banking distress episodes and the subsequent tensions, though contained by
the appropriate response of domestic authorities, make the outlook for the global
economy and financial stability more uncertain and prone to downside risks. These
episodes indicate the importance of sound regulation and close monitoring of
intermediaries' exposure to, inter alia, interest rate and liquidity risks. This is true not
only for banks but also for non-bank financial institutions, which neither benefit from a
comparable regulatory and supervisory framework nor have access to central bank
emergency liquidity assistance.
The response to short-term developments should not come at the expense of the
attention to longer-term issues. Because of compounded crises, many developing
countries are facing setbacks in fighting extreme poverty and achieving shared
prosperity. Learning losses, insufficient physical and digital investments, subdued
productivity growth, and weak institutions are all constraints on output growth,
contributing to debt vulnerabilities.
The WBG is the key development partner to low- and middle-income countries. Over
the last years, it has supported the immediate needs of the most vulnerable - badly hit
by Covid-19, and the energy and food crises - while maintaining focus on long-term
development goals. Now it must further integrate global challenges - like climate
change, pandemics, fragility, and conflict - into its core development agenda to
eradicate extreme poverty. Through its country engagements and its power as global
convener, the WBG should provide technical assistance, combine financing and
knowledge support effectively, and properly engage at the regional, national,
subnational as well as sectoral level.
Against this background, we welcome the Report on the Evolution of the WBG and
commend management and the Board of Directors for their effort over the last months.
The Development Committee paper presents a structured set of options to strengthen
the WBG, giving a clear sense of the remarkable amount of work that has been
produced so far and the complexity of the agenda we have ahead.
We agree with the proposed mission statement which retains the Twin Goals - of
eradicating extreme poverty and boosting shared prosperity - and recognizes the
importance of addressing global challenges in an increasingly difficult economic context.
We support the proposal to renew analytical products to better integrate global
challenges into country partnership frameworks while maintaining the country
ownership at the heart of the WBG model. It is also critical to provide greater emphasis
on private sector development and domestic resource mobilization. Streamlining and
consolidating such products will reduce the burden on the WBG's budget and on client
countries.
Further adjustments to the operating model are central to the WBG Evolution agenda.
We expect clear and concrete proposals for strengthening knowledge delivery and
outcome orientation to be discussed at the Annual Meetings in Marrakech. It should be
made clearer how the many different groups producing relevant research and analytics
point to a unitary vision for operations and engagements at the country, regional, and
global levels. Impact evaluation and adaptive management have to become part and
parcel of the WBG's modus operandi and accountability to all stakeholders.
We urge the WBG to delve into a new framework for partnerships with client countries,
other international financial institutions, and national agencies. Enhanced collaboration
and division of labor based on comparative advantages are key to increasing
development impact on communities and to optimal use of scarce public resources.
A similar programmatic effort is needed to strengthen the internal collaboration among
World Bank, IFC and MIGA (the so called "One WBG approach"). This requires
overcoming a silo-type attitude across the Group by favoring information sharing, better
exploiting diversity in skills and perspectives, and incentivizing staff to work together,
including through metrics to monitor progress.
The One WBG approach is a necessary condition for increasing private capital
mobilization, a fundamental lever to matching developing countries' needs. The WBG
has to take more effective action, including pushing for reforms of the business
environment and triggering a significant expansion of the private investor base and
available bankable projects.
On the financial side, we are glad to see the remarkable initial results of the Capital
Adequacy Frameworks review, designed, and launched under the G20 Italian
Presidency. We should swiftly proceed with the proposals to remove the Statutory
Lending Limit from the Articles of Agreement, lower the equity-to-loans ratio, and launch
a pilot on Hybrid Capital with private investors. These measures, together with
Management's decision to increase the limit for shareholder guarantees, would enable
about $50 billion of additional lending over 10 years. Looking ahead, we invite the WBG
to consider the implementation of all the other CAF recommendations, including the
work aimed at strengthening and improving the usability of the GEMs database.
In a similar vein, the Evolution agenda should trigger a better use of Trust Funds (TF)
and Financial Intermediary Funds (FIF). With its thorough knowledge of FIFs, the WBG
can help donors identify ways to better leverage their financial resources within each
institution.
We are confident that all of these actions will allow significant expansion of lending
capacity, to better respond to development needs.
We reaffirm our active engagement with IDA to support the poorest and most fragile
countries. Concessional resources should continue to be directed to low-income
countries, and we encourage management to explore additional balance sheet
optimization measures, as well as any strategic use of IDA capital to smooth the
financing resulting from current frontloading.
The WBG Evolution discussion must be framed and developed within enhanced
multilateralism. We cannot allow political tensions to draw new divisions across
opposing blocs. This would generate large welfare losses, especially for emerging and
developing economies, and seriously damage our ability to address major development
challenges, as well as contain social and economic difficulties originating from digital
and energy transitions. We should all work to keep the exchange of ideas and
knowledge fluid and constructive, and to ensure that cooperation among countries
remains strong.