Amidst the rising inflation and interest rate which now pose further challenges to recovery, a new report by the World Bank wants developing countries to focus on creating healthier financial sectors, as they face growing risks from financial fragility arising from the COVID-19 crisis and non-transparent debt
According to World Development Report 2022: Finance for an Equitable Recovery, there may be hidden risks, since the balance sheets of households, businesses, banks, and governments are tightly interrelated, at a time when high levels of non-performing loans and hidden debt impair access to credit, and disproportionately reduce access to finance for low-income households and small businesses.
A statement quoted the World Bank Group’s President David Malpass as saying “the risk is that the economic crisis of inflation and higher interest rates will spread due to financial fragility. Tighter global financial conditions and shallow domestic debt markets in many developing countries are crowding out private investment and dampening the recovery.
“It is critical to work toward broad-based access to credit and growth-oriented capital allocation. This would enable smaller and more dynamic firms – and sectors with higher growth potential — to invest and create jobs,” he stressed.