We have updated our Privacy Policy and Terms of Use for Eurasia Group and its affiliates, including GZERO Media, to clarify the types of data we collect, how we collect it, how we use data and with whom we share data. By using our website you consent to our Terms and Conditions and Privacy Policy, including the transfer of your personal data to the United States from your country of residence, and our use of cookies described in our Cookie Policy.
{{ subpage.title }}
Podcast: Fix the global debt crisis before it's too late, warns World Bank's David Malpass
Listen: In his final interview as World Bank president, David Malpass sits down with Ian Bremmer on the GZERO World podcast to discuss all things debt. No, not your credit card or mortgage payments, but the sovereign debt that governments use to pay their bills.
Global debt has ballooned to an eye-watering $300 trillion due to decades of low interest that made borrowing money extremely cheap, followed by runaway inflation driven by the pandemic and war in Ukraine. This dynamic has forced a lot of nations––particularly the poorest––to borrow more money than it can pay back.
In a wide-ranging interview, Malpass explains how the global debt crisis got so bad and whether there's any hope of averting economic disaster before it's too late. He also reflects on his tenure as World Bank president, advice for his successor, China's emergence in the 21st century as the world's creditor, and why the US debt limit law needs to be rewritten.
Subscribe to the GZERO World Podcast on Apple Podcasts, Spotify, Stitcher, or your preferred podcast platform, to receive new episodes as soon as they're published.- Odds of a global recession? 50/50, says David Malpass ›
- Explaining the long history of US debt (& which other countries are saddled with debt) ›
- US debt default would be "destabilizing," says World Bank's David Malpass ›
- World faces "lost decade" of economic growth, says World Bank economist ›
- Inequality isn't inevitable - if global communities cooperate ›
- Graphic Truth: Global inequality ›
- Debt limits of rich countries hurt poor countries' growth, says World Bank's Malpass - GZERO Media ›
- Ian Explains: Why is global debt so high? - GZERO Media ›
- World Bank economist: The poorest are getting poorer globally - GZERO Media ›
Staving off default: How unsustainable debt is threatening human progress
Three-fifths of the world's lowest income countries are debt distressed and in danger of default. Navid Hanif, assistant secretary-general for economic development at the United Nations, tells GZERO's Tony Maciulis that we need to make debt more sustainable by restructuring it. Hanif believes multilateral development banks, such as the World Bank, should offer affordable longer-term loans with lower interest rates to allow least developed countries better opportunities to deal with crises like climate change, poverty, and educating children.
During a conversation at the World Bank/IMF spring meetings in Washington, DC, Hanif explains how a financial divide will eventually become a development divide, which is not good for the world. He explains the urgency of the growing debt problem.
However, Hanif also expresses optimism about the potential for progress coming after years of the pandemic, citing the growth in people gaining access to the internet and a renewed commitment to climate goals.
NATO flag
What We’re Watching: NATO members’ defense budgets, Social Security as a political weapon, China’s support for Sri Lanka
NATO chief wants more defense spending
As Russian aggression in Ukraine enters year two, NATO members need to boost their defense spending. That was the message from NATO chief Jens Stoltenberg Wednesday after a summit with member states’ defense ministers. Back in 2014, around the time of Russia’s invasion of Crimea, NATO states committed to raising their respective defense spending to 2% of gross domestic product. (NATO’s direct budget is separate from national defense budgets.) Still, while many have increased their spending on military equipment and training, most NATO states – including Germany, France, Italy, and Canada – still fall short of the 2% threshold. The US, for its part, leads the pack, spending 3.47% of GDP on defense. (You’ll likely remember that former President Donald Trump made a habit of slamming NATO members, particularly Germany, for not paying their fair share. As war ravages Europe again and tensions with China soar, Stoltenberg says that the 2% target, which expires next year, should be the floor – not the ceiling. Finland and Sweden, both vying to join the bloc, respectively spend 2% and 1.3% of GDP on defense.
The politics of entitlements
President Joe Biden has made crystal clear that he believes the protection of Social Security and Medicare benefits – federally protected pension and healthcare entitlements for seniors – is a powerful political weapon that Democrats can wield against Republicans. Some in the GOP have inadvertently helped him. A number of Republicans have signaled support for plans to reduce spending on these programs by raising retirement ages and finding other ways to reduce future benefits, and Florida Sen. Rick Scott has proposed a plan that would require Congress to reauthorize all federal programs every five years. The GOP’s House and Senate leaders, Kevin McCarthy and Mitch McConnell, respectively, have said publicly they have no such intentions. But politics aside, the funding problems that Republicans point to are real. On Wednesday, the nonpartisan Congressional Budget Office released a report warning that Social Security and Medicare spending will grow much faster than federal tax revenues over the next decade as the fast-rising number of retirees puts measurable strain on the solvency of both programs. Biden says the gap can be filled without cutting benefits by asking wealthier workers to pay more in payroll taxes. Republicans counter that tax increases on the needed scale would weigh heavily on future economic growth. The two parties remain miles apart on solutions.
Will China offer Sri Lanka debt salvation?
Sri Lanka is grasping for debt relief as it heads into a key international meeting with foreign lenders organized by the International Monetary Fund on Friday. Colombo hopes to pump the brakes on the country’s downward economic spiral that saw the country run out of foreign currency and experience its first-ever default last year, triggering food shortages, power cuts, and the wrath of protesters, which forced the resignations of the president and prime minister. The island nation pines for cuts in its debt from international backers, especially China, as the Middle Kingdom is one of Sri Lanka’s biggest creditors, holding about 10% of its $51 billion debt. Beijing has so far been opaque about debt reduction. It expressed ‘support’ for Sri Lanka this week heading into the meeting but stopped short of committing to lowering the debt. Doing so would be a dodgy proposition, not just for Chinese creditors who want to be paid, but for fear that other heavily indebted poor countries will want reductions in their debt burden as well. This puts the 22 million-strong nation, often cited as a cautionary example of China’s debt trap, in yet another tough bind: It needs an emergency IMF loan, but the Fund wants creditors to reduce Sri Lanka's debt beforehand. We’ll be watching to see how far China goes for Sri Lanka.Eyewitness footage shows explosion at military industry factory in Isfahan, Iran.
What We're Watching: Iran weapons depot targeted, fierce battles in eastern Ukraine, Czechs back pro-EU president, McCarthy-Biden debt limit meeting
What we know about the Isfahan attack
In what’s broadly believed to have been an Israeli attack, three drones hit an Iranian ammunition factory in the central city of Isfahan, Iran, on Saturday night. Iranian state media said damage to the site was “minor,” but phone footage suggests that the compound – used to produce advanced weapons and home to its Nuclear Fuel Research and Production Center – took a serious blow. An oil refinery in the country's northwest also broke out in flames on Saturday, though the cause remains unknown. Then, on Sunday night, a weapons convoy traveling from Syria to Iraq was also targeted by airstrikes. US reports attributed the Isfahan attack to Israel – which has in the past targeted nuclear sites in Natanz and hit Iranian convoys transporting weapons to Hezbollah in Lebanon. Indeed, this comes after Russia purchased hundreds of Iranian-made “suicide drones,” which it has used to pummel Ukrainian cities. While the deepening military alliance between Iran and Russia is a growing concern for Washington, it’s unclear if Uncle Sam played a role in the Isfahan hit – or whether Israel, which has to date refused to deliver heavy arms to Kyiv, agreed to carry out this attack in part to frustrate Iranian drone deliveries to the Russians. The escalation comes just days after CIA Director William Burns flew to Israel for meetings with his Israeli counterparts – and as US Secretary of State Antony Blinken heads to Israel and the West Bank this week. Crucially, it highlights the increasing overlap between Russia’s aggression in Ukraine and the longtime shadow war between Iran and Israel.
The battle for Bakhmut
Days after securing commitments from Germany and the US for advanced battle tanks, Kyiv says it’s engaged in “fast-track” talks with its Western counterparts for long-range missiles and military aircraft to provide cover for tanks in action. This comes after a weekend of heavy fighting outside Bakhmut, a flashpoint in eastern Ukraine and a critical supply route for the Russian military. However, German Chancellor Olaf Scholz does not seem to be on board with these arms deliveries – at least for now. Ukraine, for its part, has been targeting train lines around Bakhmut, specifically in villages that are well-positioned to act as hubs for Russia to bring reinforcements into southern Ukraine. Meanwhile, as the Russians pummeled the village of Kostyantnivka on Saturday, Ukraine reportedly hit a hospital in occupied Luhansk, saying it was being used as Russian military headquarters. As heavy fighting continues – and Russia reportedly prepares to call up more troops – Kyiv says it’s having increasing difficulty fending off Russian advances.
Czechs choose "calm"
In a second-round run-off, the Czech Republic elected retired general Petr Pavel as its new president. The pro-Europe, former NATO four-star officer beat populist Andrej Babis, a former PM, reaping 58.32% of the vote compared to his opponent's 42%. Three of the candidates who dropped out after the first-round backed Pavel in a contest marred by threats and disinformation – and cast as a fight between Pavel’s pro-Europe multilateralism and Babis’ populism, which resonated largely with rural voters. Pavel, a former chief of general staff of the Czech military, who vowed to "lead with experience and calm" wants to continue aiding Ukraine in lockstep with the West. Babis, who would have likely adopted many of the same policies as current populist President Milos Zeman, recently said he would not honor NATO’s mutual defense clause, but later walked that back. Even though the role of the president is largely ceremonial, the office still carries weight, including being responsible for choosing the prime minister and the central bank chief. Indeed, Pavel’s win reiterates the country’s pro-Western leanings and will be music to the ears of bureaucrats in Brussels.
Can Biden and McCarthy solve the debt limit crisis?
Newly confirmed House Speaker Kevin McCarthy said on Sunday that he will meet President Joe Biden at the White House on Wednesday to try and chart a path on raising the debt ceiling to avoid default. (For context on what the debt ceiling is and why it matters, see this GZERO explainer.) Interestingly, McCarthy said that cuts to Medicare and Social Security – which some fiscal hawks in his party had been pushing for – were “off the table.” Indeed, it’s a good sign that the two are set to meet face-to-face to try and solve a looming catastrophe, but they are still miles apart in finding common ground. Biden, for his part, says he won’t negotiate and that the Republican-controlled House needs to raise the debt limit without preconditions in order to avoid an economic crisis. But McCarthy – who is being held hostage by the far-right faction of his party that nearly torpedoed his speakership bid – can’t make many concessions on increasing the federal government’s borrowing capacity without putting himself at risk of being booted out by his own caucus. While neither side has much political wiggle room, emergency measures put in place by the US Treasury to avoid default will expire in June.
Can the world avoid a global recession?
This year, the annual fall meetings of the World Bank and the IMF are all about global economic doom and gloom.
How bad will it get? Are we headed toward a worldwide recession? And who will bear the brunt of the pain?
To get some answers, GZERO World with Ian Bremmer has two very special guests: World Bank President David Malpass and IMF Managing Director Kristalina Georgieva.
Malpass tackles the elephant in the room: whether he's a climate denier. His odds of a global recession? 50/50. But the World Bank chief is more worried about the poorest countries going backwards on their development goals.
For her part, Georgieva explains the three drivers that'll likely trigger a worldwide economic slowdown next year. She also predicts that the coming winter will be bad for Europe — but the next one will be worse.
- Is the world on the brink of another global recession? - GZERO Media ›
- Will stagflation make a comeback? - GZERO Media ›
- David Malpass: I'm not a climate denier - GZERO Media ›
- Is the global debt apocalypse here? - GZERO Media ›
- Europe's 2023 energy scarcity will drive green transition, says IMF chief - GZERO Media ›
- The state of the global economy is … not good - GZERO Media ›
- World faces "lost decade" of economic growth, says World Bank economist - GZERO Media ›
Is the world on the brink of another global recession?
The global economy's 2023 outlook is ... bleak. Why? Ayhan Kose, the World Bank’s chief economist for Equitable Growth, Finance, and Institutions, says that unlike the 2009 and 2020 global recessions, next year's likely slowdown in economic activity — coupled with growing inflation — could be more like the one of 1982, which also came with a string of debt crises.
And with growing food insecurity and climate change challenges ahead, for emerging markets and low-income countries, “things are going to get worse before they get better,” Kose says. “That’s why the global community has to show willingness, consensus, and at the same time, financing, to address these problems.”
Kose spoke with Shari Friedman, Eurasia Group's Managing Director, Climate and Sustainability in a Global Stage interview on site at the World Bank/IMF fall meetings in Washington, DC.
- Is global economic inequality getting worse? - GZERO Media ›
- Global inflation shock - GZERO Media ›
- Is the global debt apocalypse here? - GZERO Media ›
- Are we in a recession? - GZERO Media ›
- Winter is coming. Global recession, too? - GZERO Media ›
- The state of the global economy is … not good - GZERO Media ›
- Podcast: China's economic head start & a world accelerating into recession - GZERO Media ›
- Emerging markets most vulnerable to recession and political discontent - GZERO Media ›
Sri Lankan army patrol on a main road in Colombo following clashes between anti-government protesters and supporters of the Rajapaksa family.
Sri Lanka on the brink
For weeks, Sri Lanka has been in the grips of a deepening economic and political crisis, teetering on the brink of anarchy and chaos as a largely bankrupt state at risk of becoming a failed one. Massive protests driven by soaring fuel and food prices have forced the resignation of Prime Minister Mahinda Rajapaksa and upped the pressure on the international community to help alleviate the suffering of Sri Lankans. China and India, which have both vied for influence in the small island nation, are looking on nervously. We spoke to Eurasia Group’s Peter Mumford to get a sense of what might happen next and what the geopolitical stakes are.
Will the prime minister’s resignation help end the political crisis?
It will only modestly assuage protestors, who are unlikely to be happy unless his brother, President Gotabaya Rajapaksa, steps down as well. He is unlikely to do so, at least in the immediate future, though protesters may feel increasingly emboldened by his sacrifice of Mahinda (and other family members) to push for the president’s scalp too.
That said, Mahinda’s resignation could pave the way for a “national unity” government that includes ministers nominated by opposition parties. This could help calm tensions in the streets initially. Ultimately though, a new administration, whatever its makeup, will quickly become unpopular because it'll be unable to remedy the existential economic crisis and the woes of its citizens. That will probably require a new IMF debt restructuring program and an improvement in the global economic outlook.
How did Sri Lanka get to this point?
The economic crisis is a result of mismanagement by the Rajapaksa administration (and its predecessors) as well as Sri Lanka’s vulnerability to external shocks. The pandemic and Russia’s invasion of Ukraine have had a devastating impact. The Rajapaksas pursued populist economic policies — including unaffordable fuel and food subsidies and printing money to finance them — that spurred inflation. The president was heavily criticized for a disastrous “100% organic” policy that aimed to reduce the strain on foreign currency reserves by banning the import of chemical fertilizers. The policy resulted in slashed agricultural output at a time when food supplies were already running low and prices were soaring.
Meanwhile, foreign tourism — a key source of jobs, economic growth, and foreign currency — fell after the 2019 Easter bombings and then collapsed during the pandemic. The spike in international commodity prices, which has been exacerbated by Russia’s invasion of Ukraine, has piled further economic pressure on Sri Lanka. The country relies heavily on imports of food, fuel, and other essential goods to feed the people and keep the lights on.
What role did China play?
Sri Lanka’s crisis is often blamed in part on China’s so-called “debt-trap diplomacy.” While it is true that Colombo has borrowed large sums of money from Beijing for infrastructure projects, China accounts for only about 10%-15% of Sri Lanka’s total external borrowings (although the share has risen in recent years). Private international investors hold just over half of it.
Beijing has supported Sri Lanka in the current crisis by providing a large currency swap agreement to temporarily bolster Colombo’s foreign exchange reserves. Still, it's just another loan. China has also allowed Sri Lanka to roll over some bilateral debt repayments but has yet to offer any debt forgiveness.
What would Sri Lanka need to do to get IMF debt relief?
The IMF has already started negotiations with Sri Lanka on a new program that will require a broad debt restructuring, economic reforms, and spending cuts. But those talks could take months to conclude, and the IMF now says that Sri Lanka does not meet the criteria for a Rapid Financing Instrument, which allows countries to get cash fast to meet urgent payments without a more comprehensive program in place.
Gotabaya has assembled a team of expert advisers to help, though discussions with creditors could take some time unless Colombo unilaterally announces “haircuts” — that is, a reduction in the amount it is willing to repay. The IMF will also need to be convinced that the government is serious about implementing the broad reforms needed to get the country’s finances back on a more sustainable path, including spending cuts and tax hikes. The central bank dramatically raised interest rates recently, signaling its willingness to take tough measures to tackle inflation and rebuild currency reserves.
What about India? Can Delhi do more beyond giving Sri Lanka food and cash lifelines?
India has provided Sri Lanka with credit lines for the purchase of much-needed fuel and other essential goods, even as India faces its own shortages and inflationary pressure. It has also offered a small currency swap agreement and indicated a willingness to provide debt forgiveness as part of an IMF package. As an important stakeholder at the IMF, India is also lobbying the fund for more and faster multilateral support for Sri Lanka.
Sri Lankan workers protest in front of the president's office at Colombo.
What We’re Watching: Sri Lanka on strike, trouble in Transnistria, Salvadorans back Bukele
Sri Lankans strike to get president out
Virtually all business activity in Sri Lanka ground to a halt on Thursday, as workers went on a nationwide strike to demand the resignation of President Gotabaya Rajapaksa. For weeks, Sri Lankans have been protesting amid the country’s growing economic and political crisis. Sri Lanka is on the brink of bankruptcy, having already defaulted on its sovereign debt and depleted its foreign currency reserves used for food and fuel purchases. Officials have been trying to get some relief from China and the International Monetary Fund, but Beijing will only refinance, and the IMF requires deep economic reforms. Meanwhile, trade unions say they'll strike permanently if Rajapaksa doesn't step down by May 6. The president is willing to appoint a new interim government and even drop his brother Mahinda as PM, but Mahinda himself has refused to resign. The opposition, which is close to getting a no-confidence vote to remove both Rajapaksas, hopes to appease Sri Lankans who have lost faith in their political leadership.
The war spills across Ukraine’s borders
“We either back the Ukrainian people as they defend their country or we stand by as the Russians continue their atrocities and aggression in Ukraine,” President Joe Biden said Thursday, noting that he’s seeking an additional $33 billion from Congress to bolster Ukraine’s defense. This comes at a moment when the war appears to be spilling across borders. Start with Transnistria, a sliver of land between Moldova and southwestern Ukraine roughly the size of Rhode Island. Russia says it’s an independent republic; Moldova says it’s land Russia stole 30 years ago. As in Ukraine’s Donbas region, Moscow claims that Russian speakers in Transnistria are threatened and deserve “protection.” That’s why mysterious explosions there this week have set teeth on edge. Is Ukraine or Moldova attacking Transnistria? The Institute for the Study of War, a Washington-based think tank, says it’s more likely Moscow is preparing a “false-flag attack,” an incident staged to justify the opening of a new front in Russia’s war. But there were also reported explosions this week in the Russian cities of Belgorod and Voronezh that may have been the work of Ukrainian drones or missiles. A coy Ukrainian official blamed “karma” before adding that Russian cities can’t expect to “sit out” the war. Both stories are worth watching in the coming days.