MAIMBO: Why World Bank is pushing against subsidies in E. Africa to deal with crises
Saturday May 28 2022
Samuel Munzele Maimbo, the World Bank director for development finance, spoke to Nelson Naturinda on how the bank is helping regional economies deal with global crises
There has been an outcry over high commodity prices. Countries such as Kenya, Rwanda and Tanzania have given economic subsidies for fuel but the World Bank is reported to be against these. What do you want the economies to do to assist their people?
Context matters. We must consider the state of the global economy. Global economic growth has been declining from 5.5 percent in 2021 to 4.1 percent currently.
Covid-19 destabilised the economies of developing countries that have lost a lot. On top of that, the war in Ukraine has taken wheat from Ukraine and Russia off the market.
Any government thinking about a response has to look at short-term and long-term needs. Short-term needs could be food and fuel and long term needs would be education.
The World Bank position is that subsidies are effective if temporary or targeted. If you do not have these two working carefully, the risk of mismanaging subsidies is high.
President Yoweri Museveni has repeatedly told Ugandans there will be no tax cuts or subsidies. Is he saying this out of pressure from you the financiers?
Our country-based model is to always put the authorities in the forefront of deciding specific policies. What we provide is advisory on how to make sure that specific policy instruments are designed in a way they work.
It is early, at the moment when food prices are rising, to be definitive in terms of the use of subsidies. It is much easier to get subsidies wrong than to get them correct, especially in a complex environment.
But people are looking for short-term relief. What are you doing?
When the World Bank is confronting global problems, we provide global solutions. When Covid-19 came, we were looking at relief. Between April 2020 and March 2022, the World Bank gave developing countries $200 billion; $73 billion on highly concessional terms, in addition to $26 billion for technical assistance. We have provided $17 billion for agriculture. Over the next 15 months, we shall be giving about $170 billion to help countries deal with multiple crises arising out of the war in Ukraine. The key is that for us having given support to governments, the governments must make sure they are the final link.
Have East African countries approached you for support because of the Russia-Ukraine conflict?
We recently had several delegations come to the World Bank to express their challenges. The challenges in East Africa are pretty similar to those in other parts of the region. One of these is the rising debt vulnerability. The number of countries that are at high risk of debt distress has increased from six to 12. The war has caused a rise in food prices, energy prices and slow tourism.
Apart from Covid-19 and the war, natural disasters have not gone on leave. These impact countries differently.
Our planned support of $170 billion is about responding to immediate needs and investing in future.
Citizens are worried about the increasing debt. Aren’t you worried?
People are right to be worried about the public debt. You cannot talk about development without talking about sustainable debt.
Are we worried? Yes, we are. Globally, the total debt to GDP has increased to over 200 percent. The worry comes in when you look at rising inflation, decline in economic growth, rising food prices, energy prices, you are coming out of Covid-19.
What the World Bank has done is to put in place a project called the sustainable development finance policy, which will make sure that countries are talking about debt. The citizens, the government should be aware of where they are. The pillars of transparency, fiscal management and debt management capacity apply.
If debt is not being managed well, at what point do you take action?
Under the sustainable debt policy, all the actions that are negotiated are made public. It allows citizens and civil society to actively monitor what is happening and have the conversation with government. We are not global police. We provide support.
Uganda’s debt to GDP ratio has risen from 41 percent to 50 percent and the government is taking action by having such a conversation.
There are countries in the region which have reached 70 percent and have not taken action. There are countries that are high debt level, but they are sustainable because their revenue generation capacity is high. Every single situation is different.
What is important for World Bank is that you are having that conversation and you are being honest with yourself as a country.
Samuel Munzele Maimbo is the director of the International Development Association Resource Mobilisation and International Bank for Reconstruction and Development Corporate Finance department at the World Bank.
Mr Maimbo joined the World Bank in 2001.
Before that, he was a bank inspector at the Bank of Zambia and auditor at PricewaterhouseCoopers.
He holds a PhD in Public Administration (Banking) from the University of Manchester and an MBA in Finance from the University of Nottingham.