World Bank: Poor countries’ debt increased by 12% in 2020 to $ 860 billion

The World Bank on Monday highlighted the dramatic increase in the debt burden of low-income countries in 2020, by 12%, to $ 860 billion due to the new coronavirus pandemic, calling for urgent efforts to reduce it.

“We need a comprehensive approach to the debt problem, which will include debt relief, more immediate restructuring, increased transparency,” the World Bank said in a statement accompanying the report, signed by Mr Malpas.

According to the head of the institution, half of the poorest countries in the world are already facing an acute problem in servicing their public debt or are in danger of facing it.

He added that making the debt of these countries sustainable is essential for them to be able to achieve economic recovery and reduce poverty.

According to the report, the external debt of low- and middle-income countries together increased by 5,3% in 2020 to $ 8,7 trillion, affecting countries around the world.

The text emphasizes that external debt grew faster than gross domestic product (GDP) as well as exports, with the debt-to-GDP ratio, excluding China, increasing by 5% to 42% in 2020, while the debt-to-GDP ratio exports jumped to 154% from 126% in 2019.

Mr Malpas emphasized the need to focus on debt relief, as the G20 Debt Service Suspension Initiative (DSSI), which offers relief to the poorest countries, is coming to an end. interest arrears.

The G20 and the Paris Club – the main creditors of the so-called official sector – have announced another initiative, the so-called Common Framework for Debt Settlements In addition to the DSSI, to restructure unsustainable debts, but only three countries – Ethiopia, Chad and Zambia – have joined this stage.

According to Mr. Malpas, further suspensions of debt service could be included in this Framework, but work is needed to ensure the participation of private sector creditors, who to date are reluctant or avoid engaging in such ventures.

According to the report, net flows from multilateral organizations to low- and middle-income countries rose to $ 117 billion in 2020, the highest level in a decade. Net lending to lower-income countries rose 25 percent to $ 71 billion, also at its highest level in a decade, with the International Monetary Fund (IMF) providing $ 42 billion and another $ 10 billion coming from bilateral lending.

Carmen Reinhart, chief economist at the World Bank, warned that the challenges for high-debt countries would become even more difficult to meet as interest rates rise.

“People need to think about what to do after January 1st,” David Malpas told reporters during a teleconference to present the report. Because “the risk is now that many countries will emerge from the crisis of the new coronavirus pandemic with a problem of high over-indebtedness, which can take them years to manage,” he warned.

Source: ΑΠΕ-ΜΠΕ