Ignazio Visco: Statement - meeting of the Development Committee

Statement by Mr Ignazio Visco, Governor of the Bank of Italy and Governor of the Constituency of Albania, Greece, Italy, Malta, Portugal, San Marino and Timor-Leste, at the 97th Meeting of the Development Committee, World Bank Group, Washington DC, 21 April 2018.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Introduction

The global economy is enjoying a moment of robust, synchronized growth. However, trade restrictions may cause an adverse global supply shock, which may be amplified by the pervasiveness of global value chains. This could be compounded by an adverse demand shock, given that the associated uncertainty could have a negative impact on decisions to invest and to consume. Overall, this would lead to a global output contraction.

Global public debt as a share of GDP has expanded substantially since the 2008 financial crisis, notwithstanding the debate about deleveraging. The increase has been particularly acute in emerging economies, including those vulnerable to interest rate increases. The World Bank should help these countries to use their budgetary lever to counteract the business cycle, focusing on the quality of public finance while protecting the poorest.

Despite all the relief efforts made by official creditors and traditional donors, debt sustainability is becoming a serious concern in many low-income countries that face higher liabilities and an increasingly complex creditor composition. This should prompt the WBG and the IMF to develop a comprehensive joint action plan which carefully considers limits in IDA countries' absorptive capacity, in order to avoid a further increase in debt vulnerabilities.