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Search… Home World USA India Community Health Business Finance/Economy Technology Women Social Media Entertainment Bollywood Immigration Hospitality Food Fashion Education Religion Science Lifestyle Sports Profile Youth Environment Editorial/Opinion Newsletter About Us Strong Dollar, Rising Interest Rates Loom Over World Bank And IMF Meetings This Week October 19, 2022 Staff Reporter 0 A strong dollar and rising U.S. interest rates are looming over this week’s International Monetary Fund (IMF) and World Bank meetings in Washington, D.C., where the Federal Despite a chorus of international voices warning against the possibility of a global recession, officials from the Treasury Department and the Federal Reserve say they are sticking to their guns in their fight against inflation.
In a bluntly worded report that was made public the previous week, the United Nations Conference on Trade and Development stated, “If monetary tightening in the advanced economies continues over the coming year… a global recession is more likely.” The developing economies’ potential growth rate will almost certainly suffer as a result.
“The U.S. economy remains quite resilient, even in the face of some significant global headwinds,” senior Treasury officials stated on Monday, despite their awareness of “potential spillovers” and “issues that develop around the world.”
According to a Treasury official, Treasury Secretary Janet Yellen will meet with “key counterparts” this week to talk about how to tackle global economic challenges.
The official stated, “This involves taking strong actions domestically to deal with our priorities, as well as communicating about those policies, working with the IMF and our allies to monitor spillovers.”
These overflows are the misfortunes that numerous more modest and medium size economies are progressively expected to persevere due to higher U.S. loan fees, which are intended to stop homegrown expansion by easing back interest.
However, investors seeking higher returns are also drawn to the United States by the increases. This makes the dollar stronger against other currencies, which hurts developing economies because it reduces export revenues in countries that don’t use the dollar.
In a Monday speech, Federal Reserve Vice Chair Lael Brainard said that “monetary policy will be restrictive for some time to ensure that inflation moves back to target” while referring to “elevated global economic and financial uncertainty,” echoing the Treasury’s sentiments.
She stated, “The Federal Reserve considers the spillovers of higher interest rates, a stronger dollar, and weaker demand from foreign economies.”
In the lead-up to what could be a prolonged period of economic stagnation brought on by the pandemic and the decade of near-zero interest rates that preceded it, such remarks provide little consolation for lower-income nations hoping for debt relief.
A report issued on Tuesday by the United Nations Development Program (UNDP) issued a warning that 54 developing economies, which account for more than half of the world’s poorest people, require debt relief right away to avert a major crisis.
The UNDP paper found that “the debt crisis is getting worse.” More than one third of developing economies issuing dollar debt are trading in distressed territory on international markets, with 19 nations paying more than 1,000 basis points for US Treasury bonds. In a similar vein, “substantial risk, extremely speculative, or default” is the rating given to 26 out of all developing economies with a sovereign credit rating at the moment, which is close to a third.
Sub-Saharan Africa, which makes up nearly half of the 54 countries mentioned by the United Nations, is the largest geographical subgroup.
Securing assets for African economies from advanced economies like the United States, according to a representative of African Development Bank Group President Akinwumi Adesina, who is attending the World Bank and IMF meetings, is a top priority.
The representative of the bank stated in an email that “the re-allocation of IMF Special Drawing Rights from willing advanced economies to Africa to leverage the resources to provide greater financing to African economies” is a major concern for the bank. The representative was referring to a type of foreign exchange reserve asset that is utilized by development banks.
Despite some progress on the cases of a few individual nations, officials from the U.S. Treasury stated that they did not anticipate any significant advancements in funding for Africa or emerging markets.
A Treasury official stated, “As you know, we have been making some incremental progress on Chad and Zambia, and we will certainly be calling for rapid progress on those two cases, but I’m not anticipating that we’ll get there in the next few days.”
The competition from China, which is currently by far the largest bilateral creditor in the world, complicates efforts to fund developing nations. China is currently servicing more debt to other nations than the combined financing of the United States, France, and the 20 other traditional lenders in the “Paris Club.”
At the Peterson Institute for International Economics in September, Brent Neiman, a counselor to the Treasury secretary, stated, “China’s enormous scale as a lender means its participation is essential.” The total stock of outstanding Chinese official loans is widely estimated to range from $500 billion to $1 trillion, with low- and middle-income nations accounting for the majority.
He stated, “A recent study estimates that as many as 44 countries owe debt to Chinese lenders that is equivalent to more than 10% of their GDP after factoring in both on- and off-balance sheet liabilities.”
A report that was released over the summer by the Group of 20 found that development banks could be lending hundreds of billions of dollars more than they currently do during a dangerous time for the global economy, which would help keep people out of poverty, despite competition from China.
According to the findings of the report, “the expected potential scale of the increase is substantial, likely to be several hundreds of billions of dollars over the medium term”
An increased risk tolerance would come with that additional lending. The report says that banks’ use of credit rating agencies gets in the way, but that higher levels of risk could be acceptable.
The creators of the report perceive “the extraordinary significance for the plans of action of [development banks] of keeping up with prevalent monetary strength as reflected in AAA evaluations, and, keeping that in mind, utilize an improved discourse with [credit appraisals agencies] and clear open explanations of investor support.”
The report also stated that “specific numeric leveraging targets should be removed from [development bank] statutes and integrated into capital adequacy frameworks.”
Different voices in the worldwide economy generally dislike proceeded with loan fee climbs and money related fixing strategies from the Central bank — eminently OPEC, which last week reported a creation cut in worldwide raw petroleum of 2 million barrels each day.
Before the midterm elections in the United States, it is anticipated that the move will raise energy costs and increase inflationary pressures even more.
“With this severity that you see, you run a big risk that you lose growth,” Prince Abdulaziz bin Salman, Saudi Arabia’s energy minister, stated last week. With more aggressive rate hikes, there is a possibility that growth will decrease even further.
