Malpass pointed out that 40 percent of low-income countries have stopped publishing data on their national debt for over two years.
(Photo: Reuters)
Berlin The growing national debt in many poorer countries is taking on a new dimension: international organizations such as the World Bank are not only concerned about the size of the mountains of debt. In addition, nobody seems to know exactly who owes whom and how much. “There are massive gaps in the tracking of debts,” criticized the World Bank in a new report entitled “Debt Transparency in Developing Countries”.
“The poorest countries will emerge from the Covid-19 pandemic with the greatest debt burdens in decades, but limited debt transparency will delay crucial debt settlement and restructuring,” warned World Bank President David Malpass in Washington. He pointed out that 40 percent of low-income countries have stopped publishing data on their national debt for over two years.
Even before the pandemic, many poorer countries were in a financially precarious position. The virus has exacerbated the imbalance. The debt ratio, the ratio of national debt to gross national product, has increased in low and middle income countries from 37 to 42 percent. However, China is excluded from the statistics.
In its report, the World Bank assesses the global and national systems for monitoring public debt for the first time. The result is worrying: According to this, debt monitoring is based on a patchwork of databases with different standards and definitions. The reliability is correspondingly low. Especially since the inconsistencies in the statistics lead to large deviations, which in some cases amount to up to 30 percent of a country’s gross domestic product (GDP).
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The report says: “Analyzing national debt in developing countries with low incomes is like solving a puzzle with many missing pieces.” The World Bank illustrates the consequences of this using the example of the African country Mozambique. Two previously unknown government bonds with a volume of 1.15 billion dollars or around nine percent of domestic GDP appeared there in 2016. The disguised mountain of debt shocked international creditors, plunging the economy into a deep recession and forcing the government to cut government spending.
Paris club is losing influence
In contrast to the 1990s, when the international national debt of poorer countries was mostly regulated by the Paris Club of rich creditor countries, the debt landscape has become very confusing today. The share of creditors in the outstanding foreign debts that do not belong to the Paris Club is now more than twice as high as that of the club members.
China has come to the fore as a new creditor, but private lenders are now also playing a bigger role. Their share has more than tripled in the last decade, writes the World Bank.
Today commercial banks are no longer the only private creditors; hedge and loan funds, asset management companies and commodity trading companies have also been added. Financial difficulties not only affect the debtor countries, but can also become a problem for private creditors in the industrialized countries.
In order to get a better overview of the debt level in the poorer countries, the World Bank proposes the publication of annual debt statistics, the promotion of coordinated data collection and reporting and the introduction of integrated debt recording and management systems.
More: World Bank warns of new debt crisis after the pandemic.