On Monetary Policy, Niger, and the Need for Faster Growth

Amid a challenging mid-year for the global economy, and especially for developing countries, I wanted to provide an update on some recent issues, including my continuing concern that the fiscal and monetary policies of advanced economies are a barrier to growth and add to the inequality and instability facing global development. The world's poor suffer the most during periods of weak growth and insecurity.?Furthermore, Niger’s military takeover challenges all of our development goals.??

Monetary Policy in Developed Countries

Inflation has been persistent, with interest rate hikes falling heavily on the national debt of advanced economies, particularly the U.S. The Fitch Ratings’ August downgrade of U.S. Treasury debt was a reminder of the slow-motion fiscal train wreck that is draining global capital. While growth in the U.S. has been resilient, part of that is government spending on personnel and procurement, which add to GDP at cost.?

Rather than sound the alarm over this fiscal drain, regulators have protected the status quo. Their power has ballooned since the days of the “Greenspan put” in the 2000s, when Wall Street expected the central bank to pause or cut interest rates to protect stock-market valuations. The Fed can now do much more: by buying huge amounts of bonds, mortgages and repos outright and paying top interest rates to U.S. and foreign banks and money-market funds. The regulators can also back large depositors after bank failures, as they did with Silicon Valley Bank in March. These powers risk moral hazard—and each payment comes at taxpayers’ expense without the accountability of Congress’s appropriations process.

Fitch’s downgrade won’t change Washington’s embedded antigrowth policies, but it is a reminder that the numbers don’t add up and that financial markets worldwide, including developing countries, still have to divide up the losses from a long string of interest rate hikes.

Read my full WSJ op-ed on this critical issue here.

Also of concern is the wide divergence among monetary policies and bond yields, particularly due to the Bank of Japan’s policy of controlling bond yields.

Under Governor Kazuo Ueda, the BoJ’s struggle to hold bond yields down - through massive BOJ ownership of bonds funded by commercial bank debt - is a reminder that advanced economies still have many more assets to reprice after a decade of capital misallocation and inequality.

Japan’s dynamism is unfortunately still harmed by QE at the expense of median income, economic growth, and innovation.

In the United States, Japan, and other advanced economies, there is an urgent need for faster growth as societies age and worldwide inequality becomes a dominant cause of instability. Persistent inflation, unsustainable debt, and food and energy shortages are keeping developing countries at risk.

As the world continues to grapple with challenging geopolitical and economic conditions, it is more important than ever for the advanced economies to fully rethink their monetary and fiscal policies to encourage growth and production that counteracts the inflation and shortages blocking development.

Niger

The military takeover in Niger is the latest harmful governance tragedy hitting the developing world.?Each one is different but there are common threads. I visited Niger’s capital, Niamey, in March for discussions with President Bazoum and other government leaders on security threats, resources, the debt burden, and Niger’s shortage of energy and fertilizer.

On the security side, armed militants are pushing through Niger’s borders. The weakening military presence of France and the United States, China’s soft power, and the intrusion of Russian mercenaries each deepen the instability. The abrupt U.S. withdrawal from Afghanistan provided a warning of this shift in global power, as well as a large source of advanced arms to Islamic fundamentalists.?

Economic reversal is another cause of the governance crisis in the developing world. Home to billions, many see no growth opportunities. One barrier is the internal mistakes their own governments are making. But the other big barrier is slow global growth and the scarcity of resources for Niger’s people as global policies force high energy costs and food shortages.

Capital that should be flowing into trade, infrastructure, and education go instead to aging societies in advanced economies for consumption and interest payments.?

Niger is twice as big as Texas, with fewer people. It has uranium, oil and hydropower resources. This has attracted active China construction projects for dams, pipelines and mining. I asked President Bazoum how this is working out. He said the Chinese are working 24/7. Like most of Africa, Niger has unmet electricity needs for a population that is expected to grow from the current 25 million to 65 million by 2050 (Texas has 30 million). With natural gas and electricity in short supply, Niger’s home cooking is mostly done with firewood, with giant stacks lining the mostly unpaved roads.

The global imbalance in natural gas and fertilizer is the most glaring resource problem. Russia’s invasion of Ukraine reduced the world’s exportable supplies. The remainder were quickly absorbed by advanced economies through long-term contracts. Nuclear plants in Japan, Germany and the U.S. are closed or underutilized. Only China is rapidly building its nuclear power capacity. Dependence on natural gas shifted to Texas exporters, with only limited exploration in Europe, China, or Africa. The latest barriers to Black Sea and Danube exports of Ukraine's grain and fertilizer adds to Russia’s strength as an energy and fertilizer producer. India’s rice export ban and China’s stockpiling of grains adds to the scarcity risk. The ample fertilizer made from natural gas in Nigeria, Niger’s neighbor to the south, goes to Brazil, not Africa. All these factors leave undernourishment in Niger and across Africa and the risk that crop yields will be diminished for years.

Dozens of the world’s developing countries raised these same topics with me during my six years in public service at the U.S. Treasury and World Bank. They want to build market systems but are deeply frustrated with the current international financial system that favors the haves over the have-nots. This is nowhere more apparent than in the endless and unproductive negotiations over unsustainable debt. There’s no sovereign bankruptcy process to facilitate debt restructurings, leaving people in debtor countries unfinanceable. This is especially costly for the poor after the rise in interest rates from artificial zero in advanced economies (Japan still has negative rates at the short end.)

In my discussions in Niamey in March -- with President Bazoum, Prime Minister Mahamadou, many cabinet members, and former President Issoufou -- the focus was on the security challenge and the need for growth, electricity access, and investing in girls’ education. I was pleased to visit the Niamey Teacher Training College, one of eight nationwide and Niger’s solar hub, but the quantities of energy, water and food needed greatly exceeds any current growth plans.

In a speech hosted by Abdou Moumouni University, I laid out the prospect of a prolonged period of financial stress for developing countries. Our goal needs to be development that fosters macroeconomic stability and meets basic needs.?This will take stronger private sectors, increased trade, and support for global public goods. I also highlighted the magnitude of the annual investments needed to meet the financing gap for development and global public goods and the importance of concessional resources well above current IDA levels as Niger and the region struggle with deep security and economic threats. ?

– David

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