Jun 26, 2022

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MAIMBO: Why World Bank is pushing against subsidies in E. Africa to deal with crises

Samuel Munzele Maimbo, Director of Development Finance at the World Bank, spoke to Nelson Naturinda about how the Bank is helping regional economies deal with global crises

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There was an outcry about high commodity prices. Countries like Kenya, Rwanda and Tanzania have given economic subsidies to fuel, but the World Bank is said to be opposed. What do you think economies should do to help their citizens?

Context matters. We must consider the state of the world economy. Global economic growth has slowed from 5.5 percent in 2021 to 4.1 percent now.

Covid-19 has destabilized the economies of developing countries, which have lost a lot. In addition, the war in Ukraine has taken wheat from Ukraine and Russia off the market.

Any government contemplating a response must consider short and long-term needs. Short-term needs might be food and fuel, and long-term needs would be education.

The World Bank’s position is that subsidies are effective when they are temporary or well-targeted. If you don’t get these two to work carefully, the risk of mismanagement of subsidies is high.

President Yoweri Museveni has repeatedly told Ugandans that there will be no tax cuts or subsidies. Is he saying that under pressure from you, the financiers?

Our country-based model is to always put the authorities first when it comes to making policy decisions. What we offer is advice on how to ensure that certain policy tools are designed to work.

The moment food prices are rising, it’s still early to decide how to use them to be definitive of subsidies. It’s far easier to get subsidies wrong than to get them right, especially in a complex environment.

But people are looking for short-term relief . What do you do?

When the World Bank faces global problems, we provide global solutions. When Covid-19 came, we looked for relief. Between April 2020 and March 2022, the World Bank made $200 billion available to developing countries; $73 billion on very favorable terms, in addition to $26 billion in technical assistance. We have committed $17 billion to agriculture. Over the next 15 months, we will provide around US$170 billion to help countries deal with the multiple crises resulting from the war in Ukraine. The key is that once we’ve backed them, governments need to make sure they’re the last link.

Have a look at East African countries you turned? for support because of the Russia-Ukraine conflict?

Recently, several delegations came to the World Bank to express their challenges. The challenges in East Africa are quite similar to those in other parts of the region. One of them is increasing debt vulnerability. The number of countries at high risk of a debt crisis has risen from six to twelve. The war has led to increases in food prices, energy prices and slow tourism.

Apart from Covid-19 and the war, natural disasters have not gone on holiday. These impact countries differently.

Our planned $170 billion in support is designed to respond to immediate needs and invest in the future.


Citizens are worried about the rising debt. Aren’t you worried?

People are right to be worried about the national debt. You can’t talk about development without talking about sustainable debt.

Are we worried? Yes we are. Globally, total debt to GDP has risen to over 200 percent. The concern comes when you look at rising inflation, slowing down economic growth, rising food prices, energy prices, you’re coming out of Covid-19.

What the World Bank has done is do a project called the Sustainable Development Finance Policy, which will get countries talking about debt. Citizens and government should know where they are. The pillars are transparency, budgetary management and debt management capacity.

If the debt is not well managed, at what point do you take action?

All negotiated measures are published as part of the sustainable debt policy. It enables citizens and civil society to actively observe what is happening and engage in dialogue with the government. We are not a global police force. We offer support.

Uganda’s debt ratio has risen from 41 percent to 50 percent and the government is taking action by having such a conversation.

There are countries in the region that have Reached 70 percent and did nothing. There are countries that have high levels of debt, but they are sustainable because their revenue generating capacity is high. Every single situation is different.

What is important to the World Bank is that you have this conversation and be honest with yourself as a country.

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BIO
Samuel Munzele Maimbo is Director of the Resource Mobilization Division of the International Development Association and the Corporate Finance Division of the International Bank for Reconstruction and Development at the World Bank.

< p >Mr. Maimbo joined the World Bank in 2001.

Prior to that he was Bank Inspector at Bank of Zambia and Chartered Accountant at PricewaterhouseCoopers.

He holds a PhD in Public Administration (Banking) from University of Manchester and an MBA in Finance from the University of Nottingham.