Development Committee: The Managing Director's Written Statement October 2022

Policy Papers, October 14, 2022

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Several simultaneous shocks are weighing on the global economic outlook and complicate policymaking.
Inflationary pressures are on the rise and increasingly broad based.
Russia’s war in Ukraine continues to send shockwaves through the global economy, including by disrupting commodity markets and contributing to higher sovereign risk spreads.
Lower growth in China as a result of lockdowns and a weaker housing market curtails global demand.
Climate change is generating increasingly costly extreme weather events.
The combination of lower growth and high prices squeezes household budgets.

Households in low-income developing countries (LIDCs) are especially squeezed where hard-to-replace spending items, such as food, account for a large share of consumption.
EMDEs need to cope with less favorable financial conditions and weaker currencies that raise the domestic currency value of foreign debt.
These factors create a constellation that contains potential for wider debt distress.

Central banks face difficult policy trade-offs, as both over- and under-tightening the monetary stance would come with significant costs.
Policymakers should focus on:
- Gaining control over inflation,
- Preserving financial stability,
- Using focused and well-targeted fiscal interventions to support those most in need.

Development Committee: The Managing Director's Written Statement October 2022