Ndubuisi Francis in Abuja
The World Bank President, David Malpass has warned that the debt situation for poor countries might worsen due to volatile commodity prices and higher interest rates, urging such countries to begin a gradual fiscal consolidation to maintain investor confidence.
He called for concrete steps to improve the transparency of debt contracts, increased accountability, and ensuring decisions draw on comprehensive information.
In a speech he presented yesterday, during a visit to Sudan ahead of the World Bank/International Monetary Fund (IMF) annual meetings mid-October, he said many developing countries had made extraordinary efforts to support their people and keep economic activity going during the COVID-19 pandemic.
According to him, as of mid-2021, over half of the world’s poorest countries were in external debt distress, or at risk of it.
He reiterated his call for accelerated cooperation to implement a G-20 debt restructuring framework for poor countries, including from the private sector, which has so far failed to extend forbearance to sovereign borrowers.
The World Bank President stressed the need to pursue a gradual and people-oriented fiscal consolidation, and to restructure unsustainable debt.
Countries, Malpass stated, should also seek to re-profile their debt payments while international interest rates remain low, while eliminating wasteful spending.
Calling for increased scale of development efforts to help economies rebuild from the COVID-19 pandemic, he said: “To achieve impact, we need education, nutrition and vaccination programs that reach hundreds of millions of children.
“We need digital cash transfer programmes that can provide necessary resources to billions of people in the next crisis.”
According to him, many countries have gone beyond what they could afford, especially as debt in developing economies was at record highs when the pandemic hit.
“As of mid-2021, over half of IDA (International Development Association) countries – the world’ poorest countries – are in external debt distress or at high risk of it. This situation could worsen if commodity prices are volatile, interest rates increase, or investors lose confidence in emerging markets.
“When the debt service suspension initiative – or DSSI – expires at the end of this year, low-income countries that resume debt service payments will see their fiscal space shrink, limiting their ability to purchase vaccines and finance other priority expenditures.
“It’s time to pursue a gradual and people-oriented fiscal consolidation, and restructure unsustainable debt. Enhanced and accelerated implementation of the Common Framework will be critical on this front.
“We need global cooperation, including private sector participation, to provide debt relief to the world’s poorest countries and fund growth-enhancing investments. In Sudan, for example, global cooperation that included the U.S., France and the UK helped the country clear its arrears with the World Bank, IMF and other IFIs, making possible more than $50 billion in debt relief in what will be the largest HIPC initiative ever,” he said.
The World Bank President noted that it was critical that countries eliminated wasteful public expenditures, make service delivery more efficient, and reallocate public resources to their most productive uses.
