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Posted: Thursday, January 7, 2021. 6:33 pm CST.
By Aaron Humes: World Bank Group President David Malpass has declared a ‘red alert’ for countries working to adjust their debt burdens, saying it was necessary to dramatically reduce the burden, especially in poorer countries, according to Reuters news agency.
He named countries such as Chad, an African oil producer; Zambia, Angola, and Ecuador as examples of countries that defaulted on or restructured debt.
Malpass said the Bank and the International Monetary Fund (IMF) were currently assessing the debt sustainability of countries facing problems.
COVID-19 has hit developing countries hard economically, exacerbating heavy debt burdens already faced by many countries before the crisis.
China, the biggest creditor by far with 65% of official bilateral debts, had to focus on its response, given sharp declines in countries’ ability to service those debts, Malpass said.
Adjustments were clearly needed to ensure debt sustainability assessments reflected lower short-term and long-term interest rates, Malpass said, noting that debt reductions could occur through cuts in debt stocks, but also by lowering interest rates on existing debts.
In addition, Malpass underscored the need for legislative changes in major financial centers to expedite the restructuring of private-sector debt. The current system favored creditors and made it very difficult for debtor countries to “achieve the reduction in debt that’s needed in this new environment.”
Malpass said a common framework for debt treatments adopted by China and other Group of 20 major economies in November, and extension of a freeze in official bilateral debt payments through June were good steps, but more work would be needed.
He said he had already spoken with Italian officials and they were committed to continuing efforts to help heavily indebted countries during Italy’s year at the helm of the G20.
Belize has amassed debts of more than $4 billion, including hundreds of millions domestically and internationally in the last year to pay salaries and pursue COVID-19 relief projects. It has deferred interest payments on the Superbond and may possibly need to ask for a fourth restructuring of the debt before payments resume.
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