“It is clear that the crisis in the world’s largest economy will be negative for everyone,” David Malpass told Reuters on the sidelines of the G7 finance meeting. “The repercussions will be bad if the debt ceiling is not raised.”
Finance officials from major Group of Seven countries meet in Japan, amid talks on the importance of raising the debt ceiling to prevent the United States from defaulting on its obligations for the first time, in addition to inflation and troubles in the banking sector.
For its part, the International Monetary Fund warned on Thursday of serious repercussions if the United States defaulted on its debt, as the deadline approached for the country to raise the debt ceiling or the suspend.
“Our assessment indicates that very severe repercussions are expected, not only for the United States, but also for the global economy, should the United States default,” IMF spokeswoman Julie Kozak said. calling on all parties concerned to resolve the issue as a matter of urgency. .
US Treasury Secretary Janet Yellen had confirmed continued uncertainty over when the cash needed to pay government debts would run out, but she said she would keep Congress informed of any date changes, which could be around the first of June.
Yellen said in an interview with Bloomberg that she would be meeting with senior bankers on Wall Street to discuss the debt ceiling next week, and she also reiterated that Congress’ failure to raise the debt ceiling by $31.4 trillion will cause economic crisis and financial disaster.
Turning to the global economy, Malpass said the G7 meetings discussed the need to boost productivity and growth, as well as address the heavy debt burden facing a growing number of countries.
He added that global growth is expected to fall to less than 2% in 2023 and could remain weak for several years. He pointed out that one of the major challenges is represented by the excessive borrowing of developed countries, which will require the provision of a lot of capital to service debts, which will leave little investment for developing countries.
“This means that slow growth will continue for a long time. This is a big concern, especially for people in poor countries. The world is in a phase of stress, but I think the financial systems are holding up. The big problem is growth, how do you get more growth and productivity?” Malpass said.
He added that there was an urgent need to move forward in restructuring the debts of countries that had asked for help, and welcomed “some progress” with Ghana, the fourth country to ask for debt relief within the common framework of the G20.
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