The following is a transcript of an interview with President of the World Bank Group David Malpass that aired Sunday, June 26, 2022, on "Face the Nation."
MARGARET BRENNAN: We now want to welcome David Malpass, President of the World Bank. Welcome back to Face The Nation.
PRESIDENT OF THE WORLD BANK GROUP DAVID MALPASS: Thank you very much.
MARGARET BRENNAN: There are a lot of stressors on the global economic system right now, how do you describe where we are?
MALPASS: It's a sharp slowdown, including even China. So we've seen the world growth fall by half since January in terms of GDP growth. But there's also shortages, there's inflation. And the food shortages for the poorer countries are becoming a significant concern, they already are.
MARGARET BRENNAN: I mean, global inflation, it's not just the US it's other wealthy countries around the world. But you're also describing a recipe for global instability.
MALPASS: It feeds in when there's not enough food that for- for weaker countries, poorer countries, that- that causes instability. And it's a big factor in the turnover of governments that's been occurring in quite a few of the countries. And then there also has to be much more discussion of what to do about the fiscal challenges that you know, running out of money for government as well as food. And so these all go together into fragility, very concerning.
MARGARET BRENNAN: COVID caused the deepest global recession since World War Two. Now, the world economy is in danger because of this Russian invasion in Ukraine. How do you avoid a global recession with all of these factors?
MALPASS: Some countries, it's going to be very hard to do that. I think that leadership from the stronger countries is very important. There are a lot of possibilities, tools, for example, the- the central banks have many more tools than in 2008. You know, there were, there are regulatory tools that they have, they now hold huge bond portfolios, those could be- those are all funded by money from banks. So if there is reduction in the bond portfolios, that frees up capital that could be used for these supply chains that are so strained. The bottom line is there needs to be lots more production and that's most available to the strongest countries. The U.S. is the world's biggest economy and can increase production more than anybody else. And so that becomes one of the key variables in the outlook. What are you doing today, to increase production of everything, the world needs practically everything that the U.S. makes and there needs to be a process to really boost that production.
MARGARET BRENNAN: So if you were talking to Jerome Powell, that chair of the US Federal Reserve, you would say focus less on interest rates, focus more on what?
MALPASS: He's got multiple tools. One is regulatory policy, the Fed is a sort of an important regulator of banks. So let the banks lend more. But then also on the bond side, reducing the bond portfolio would return more money to banks, all of the money being used to hold the bond portfolio comes from banks. And if they had more, they could lend and also the non-bank sector of the U.S. economy. That's one of the most innovative, and it could put more money into the supply chain.
MARGARET BRENNAN: It's interesting, you say that, the banks, I heard something from a U.S. official talking about that as an impediment to oil companies right now and President Biden's calling on them to produce more energy. Is that a problem, that you see?
MALPASS: Big problem, and it's really around the world markets look ahead, and they look at what the regulatory policy is going to be into the future. So if you're an oil company, you hear the message from all around that, that the- the politicians don't want your oil. And so- so then you- you drill less you put you make less of your R&D plans. You know, R&D is research and development is critical to the innovation in every sector. In developing countries, they aren't producing energy either, because they're constrained by bank regulations by the lack of financing.
MARGARET BRENNAN: But even at this meeting of the largest global, you know, Western economies at the G7, there's going to be focus on sustainability, there's going to be focus on climate change, the message there is switch away from fossil fuels. But then at the same time, you're hearing Germany, build a coal burning once again, the United States urging oil and gas production once again, because of the crisis with Russia. So how do all these pieces fit together without impacting growth in a negative way?
MALPASS: There's an inconsistency and it's a moment in time the world's trying to reduce the dependence on Russia, and also on China. And it needs to keep markets open and not restrict exports and finance the new investments that's needed, and there's not clarity in Europe. You know, some of the countries want nuclear power, some want natural gas, and they're talking about importing natural gas, but they're doing it slowly. So that for the poorer countries in the world, this is also- it's a conundrum, how are we going to get forward when Europe is drawing in so much of the world's natural gas.
MARGARET BRENNAN: So a state department official said, a few days ago, food crisis will be at least a three-year problem. What time horizon do you put on the food crisis and the energy crisis?
MALPASS: I'll say one thing, it's possible to produce enough to soften that crisis. But at the rate that we're going right now, the fertilizer isn't being made, you know, fertilizer comes a giant source of fertilizer is from natural gas, through the ammonium channel into the most useful fertilizer. And it also is used to make the electricity that converts the minerals into fertilizer, and that's just not happening. So a lot of the world is shutting down for lack of fertilizer, and then those shortages of crops will last for multiple years. We need to break that cycle, and do it pretty forcefully now, through announcements. The markets listen to what the governments are saying. And I think if the governments were saying, if the central banks were saying there'll be currency stability, meaning years and years from now, the currencies won't have devalued, they won't be causing inflation, they're going to be strong and stable for the long term, that would go a long way and the same thing on this production side of the economies, say that you want your strong economies to produce twice as much as they are right now. That's within reach for many of these innovation techniques.
MARGARET BRENNAN: The Federal Reserve Chair said this week in this country, that recession is certainly a possibility, in part because of higher interest rates. Citigroup puts the odds of a recession at 50%. What's your projection here for the world's most important economy?
MALPASS: We put out a report three weeks ago that didn't have the US in recession. But we said in downside scenarios there could be and so I don't disagree with those estimates that you're seeing there. And I would say the key variable is what do you do today to provide more production that addresses both the recession problem and also the inflation problem because you- you just push goods into the market and you make it clear to the world, we're going to produce so much, you won't be able to get that price.
MARGARET BRENNAN: So do you agree with Fed officials when they say it's going to take at least two years, a couple of years before we get inflation back down to 2%?
MALPASS: It's going to take time to come down, but again, that depends on what our- what's your forecast for oil prices, for natural gas prices, for fertilizer? I guess it's- it's clearly- it's going to take- months and months and maybe two years to bring inflation back down. It- markets respond, though, to signals. And so I think the important question is, can there be enough signals out of the U.S. but also the other advanced- the big economies, that they're going to provide more production. And the reason I keep coming back to that central banks have a lot to do with whether businesses feel that they can borrow more money. It's the regulatory policy, also this, this control of so many bonds, you know, in Japan, they've bought up a huge part of the national debt, so the central bank, but takes money from the banking system and buys government bonds. That's not adding to supply in Japan.
MARGARET BRENNAN: So lastly, before I let you go, you have warned on this program before about a debt crisis in these developing countries, the emerging markets, with interest rates headed up is that now where we are, are we at crisis?
MALPASS: We're at crisis, and we see more countries falling in one by one, we've seen that Sri Lanka in the very grave difficulties there. But it's, it's going to be many countries because of as you say, the interest rates going up and also their GDP going down in- in this slow growth environment of the world. The solution is a lot more production intent from the advanced economies.
MARGARET BRENNAN: A perilous moment for the global economy, David.
MALPASS: Dangerous, and I just hope we can push through strongly and with confidence.
MARGARET BRENNAN: Thank you very much for your time. We'll be right back.
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