“The world should be thinking about what to do after the 1is January, ”said World Bank President David Malpass.
World Bank President David Malpass warned on Monday about the risk of over-indebtedness in poor countries emerging from the pandemic, urging “a comprehensive approach” to the debt problem including its reduction.
To deal with the COVID-19 pandemic that was spreading across the world, governments around the world injected massive aid into their economies while the World Bank and the International Monetary Fund came to the bedside of the most affected countries through the crisis by providing them with emergency loans.
Urgent action is needed as the G20 Debt Service Suspension Initiative (DSSI), which enabled the most vulnerable economies to benefit from a debt suspension, expires at the end of December .
“The world should think about what to do after January 1,” said David Malpass on a conference call, saying that the continuation of the DSSI device “is something that should be considered.”
Because “the risk is now that too many countries will emerge from the COVID-19 crisis with significant over-indebtedness which could take years to manage,” he warned.
The outstanding external debt of countries eligible for DSSI increased, on average, by 12% to reach 860 billion dollars, detailed the World Bank in a report published on the occasion of the autumn meetings which started on Monday.
For some of them, the increase was 20% or more.
And, for most countries, rising indebtedness has not been matched by growth in gross national income and exports.
“A large-scale change in the approach to debt transparency is needed to help countries assess and manage their external debt risks and work towards sustainable debt levels and conditions,” stress economists at the Bank.
David Malpass and the Managing Director of the International Monetary Fund Kristalina Georgieva keep repeating that greater data transparency is essential to resolve the debt problem, in particular to negotiate with creditors.
If we add the middle-income countries, the stock of external debt increased on average by 5.3% to 8,700 billion dollars last year, an increase in annual rate comparable to that recorded in 2018. and 2019.
“However, for many countries the increase has been in double digits.”
But even before the pandemic, many low- and middle-income countries were in a vulnerable position, with slower economic growth and high public and external debt.
“Economies around the world are facing a daunting challenge posed by high and rapidly increasing debt levels,” Carmen Reinhart, chief economist of the World Bank, commented in a statement.
“Policymakers should be prepared for the possibility of over-indebtedness when financial market conditions become less favorable, especially in emerging countries and developing economies,” she also stressed.
Mr. Malpass recalls that “sustainable” debt levels are crucial for economic recovery and poverty reduction.
This is “fundamental to supporting education and health systems infrastructure and creating investments for growth and prosperity.”
The traditional fall meetings of the International Monetary Fund are being held this week in Washington, partly in virtual mode due to the pandemic.
Some delegations will nevertheless be welcomed in person, a first since October 2019.