World Bank: Growing Gap Between Rich and Poor

The new head of the World Bank, Ajay Banga, at the G20 finance ministers’ meeting in India, said on Tuesday that the growing gap between rich and poor nations risks deepening poverty in developing countries.

Many countries are still recovering from the double blow of the coronavirus pandemic and the consequences of the Russian war in Ukraine, which has affected global fuel and commodity prices.

Climate change, meanwhile, is hitting some of the poorest countries the hardest, which struggle to cope with it. Banga expressed concern that a lack of progress could lead to a greater gap in the global economy, to the detriment of the world’s poorest.

“What keeps me awake at night is the distrust that quietly divides the global north and south at a time when we need to unite. The frustration of the global south is understandable. In many ways, they are paying the price for our prosperity. They are concerned that promised resources will be redirected to the reconstruction of Ukraine, believe that energy rules are not applied evenly, limiting ambitions, and are worried that the grip of poverty will affect another generation,” Banga said at the two-day meeting of finance ministers and central bank leaders in Gandhinagar, Gujarat. Banga was born in India and is a naturalized American citizen who took office at the World Bank last month after being nominated by U.S. President Joe Biden.

The World Bank stated that it is working to increase its financial capacity, including raising hybrid capital from shareholders to stimulate growth and jobs, but said that future economies cannot rely on expansion at the expense of the environment.

“We cannot afford another period of growth with intense emissions,” Banga said.

Indian Finance Minister Nirmala Sitharaman opened discussions on Monday, reminding leaders of their responsibility to steer the global economy towards strong, sustainable, balanced, and inclusive growth.

The United States says that efforts to reform multilateral lenders such as the World Bank and other regional institutions could unlock $200 billion in the next decade. Debt restructuring agreements for low-income countries are at the center of attention for the Group of 20 major economies, but officials say little progress has been made.

China, the world’s second-largest economy and a major lender to several low-income countries in Asia and Africa, has so far resisted any debt restructuring formula that would be acceptable to all, officials said. More than half of all low-income countries are close to or in a debt crisis, double the number in 2015, said U.S. Treasury Secretary Janet Yellen. Yellen said on Sunday that negotiations over Zambia’s debt have dragged on for too long, but added that she hopes a debt solution for Ghana and Sri Lanka will be finalized quickly.

G20 discussions also focused on reforming multilateral development banks, cryptocurrency regulations, and easier access to financing for climate change mitigation and adaptation.

A recently agreed first step towards a fairer distribution of tax revenues from multinational companies, achieved by 138 countries last week, will also be implemented.

Multinational companies, especially tech firms, can currently easily shift profits to low-tax countries even though they conduct only a small part of their activities there.