World Bank demands faster G20 debt relief as poor countries rush

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Four thousand US dollars are counted by a banker counting change at a bank in Westminster, Colorado on November 3, 2009. REUTERS / Rick Wilking

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LONDON, Jan.11 (Reuters) – Poorer developing countries need faster G20 debt relief, the World Bank said on Tuesday, stepping up calls for China, the world’s largest creditor. world, and private sector creditors, are backing down and participating fully in debt relief efforts.

The pandemic-induced recession in 2020 left around 60% of low-income countries in or at high risk of debt distress, and many emerging economies were also struggling, World Bank President David Malpass told reporters as the bank unveiled its latest global economic outlook. report.

Debt levels in emerging countries and developing economies have grown at the fastest rate in three decades, according to the report, and while growth in low-income economies is expected to strengthen in 2022 to 4.9% and in 2023 at 5.9%, per capita income is expected. to stay below pre-pandemic levels this year in half of them. Read more

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In 2022 alone, the poorest countries had to pay $ 35 billion in debt service to official bilateral and private creditors, more than 40% of which owed to China, after the end of the freeze on payments of debt last year, Malpass said.

“Risks of disorderly default are increasing; tightening monetary policy in advanced economies will have a ripple effect,” he said, reiterating his call for reforms of the common framework launched by the Group of 20 major economies. and the Paris Club of official creditors. in November 2020.

The framework aims to provide debt relief primarily through maturity extensions and interest rate reductions for countries eligible for repayment moratoria under the Debt Service Suspension Initiative. debt (DSSI), but progress has been slow.

“Significant debt relief is essential for the poorest countries. If we wait too long, it will be too late,” said Malpass, calling for an end to non-disclosure agreements often demanded by China and other creditors, as well as clear rules. to assess and apply comparable treatment to all creditors.

QUICK ACTION NEEDED

Malpass said adding an aggregate collective action clause to all new public and private sector debt instruments could help rebalance the power between debtor and creditor countries.

He said faster work was needed on debt restructurings, noting that Chad, the first country to request treatment under the framework a year ago, was still waiting to complete the process. So far, only three countries have requested debt restructuring, but others need help.

Malpass said he was cautiously optimistic about progress on the debt issue under Indonesia’s leadership at the G20, recent conversations with Chinese officials and the great interest in investing in countries like Chad, the Zambia and Sri Lanka, if their debt structure could be stabilized.

Debtor countries should also strengthen fiscal frameworks and increase debt transparency, according to the report.

High and growing debt levels made markets and institutions increasingly vulnerable to financial stress, especially in countries where weak fiscal positions and high sovereign debt left much less room for an effective response.

The World Bank has highlighted China, where financial strains could trigger disorderly deleveraging in the real estate sector. Read more

“An episode of turbulent deleveraging could trigger a prolonged downturn in the real estate sector, with significant economy-wide spillovers through falling house prices, reducing household wealth and falling local government incomes. “, did he declare.

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Reporting by Karin Strohecker; Editing by Alexander Smith and Emelia Sithole-Matarise

Our Standards: Thomson Reuters Trust Principles.

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