David Malpass, President of the World Bank, warns of a new debt crisis in poorer countries.
(Photo: dpa)
Many poorer countries face a debt crisis after the pandemic. According to a new study by the World Bank, the mountain of debt in low-income countries rose by twelve percent last year to a new record of $ 860 billion. The reason for this is the massive financial aid from many countries to mitigate the health and economic consequences of the corona crisis.
“We need a comprehensive concept for the debt problem that includes debt reduction, faster restructuring and more transparency,” said World Bank boss David Malpass at the start of the autumn meeting of the World Bank and the International Monetary Fund (IMF) in Washington, “a sustainable level of debt is for economic recovery and the fight against poverty are essential ”.
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) in low- and middle-income countries has increased from 37 to 42 percent. However, China is excluded from the statistics.
The debt-to-export ratio has deteriorated even more, from 126 to 154 percent in 2020. Export revenues are particularly important for many countries because they generate foreign exchange income that is needed to service debts raised abroad.
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“The economies around the world are facing the enormous challenge of high and rapidly increasing debt,” said World Bank chief economist Carmen Reinhart. Political decision-makers would have to prepare for the possibility of a debt crisis if conditions in the financial markets worsened, “especially in emerging and developing countries”.
G20 defers debt servicing
In order to counteract a new debt crisis, the 20 most important industrialized and emerging countries (G20) agreed in April 2029 on an initiative to suspend debt service (Debt Service Suspension Initiative, DSSI). The aim is to help the poorest and most vulnerable, low and middle income countries cope with the negative effects of the Covid-19 pandemic.
The crisis has driven up the need for financing and thus public debt, while at the same time weakening the economic foundations of the individual countries and their ability to service and repay public debts, said Malpass. “The risk now is that too many countries will emerge from the Covid-19 crisis with a large debt overhang that could take years to deal with.”
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