World Bank Chief Warns G-20 Debt-Relief Delay Will Worsen Poverty

(Bloomberg) — A lack of progress by the world’s largest economies to reduce the debt burden of the poorest nations as borrowing costs increase will cause worsening poverty rates and instability, World Bank Group President David Malpass said.

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“Debt relief is of major importance for the world because the interest rates are going up,” Malpass said in an interview on Bloomberg Television on Tuesday. “The debt was already too burdensome and now the countries are experiencing currency depreciation, which causes inflation.”

Surging prices have forced central banks worldwide to tighten monetary policy, led by the Federal Reserve’s pivot to aggressively lifting rates, which has supercharged the dollar. Meanwhile, developing nations have amassed a quarter-trillion dollar pile of distressed debt that threatens to create a historic cascade of defaults.

The worsening debt burden comes after the expiration in December of the so-called Common Framework adopted by the Group of 20 to suspend or revamp debt repayments by low-income countries during the Covid-19 pandemic.

“There’s not really a process to reduce that debt. We saw that at the G-20 just completed last week — no forward progress,” he said, referring to the group’s meeting last week in Bali, Indonesia.

With emerging and developing economies’ debt at multi-decade highs, the increase in global borrowing costs and exchange-rate depreciations “may trigger financial crises, as was the case in the early 1980s,” the World Bank said in the June edition of its Global Economic Prospects report.

About 60% of the world’s 75 poorest countries are in or at risk of debt distress, and this is spreading to middle-income countries, Malpass said at the time.

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Zambia Hope

International creditors for Zambia, Africa’s first pandemic-era defaulter, held a key meeting on Monday about how to deal with the nation’s debt. The country is one of a few using the Common Framework, but progress has been slow.

“I’m hopeful that Zambia may be able to get debt relief in the next few days,” Malpass said. “That gives some sign of hope, but it has to be put into practice with actual reduction of debt.”

Failing to reduce this debt in Zambia and other countries is crucial, he added.

“Otherwise, the poverty rate goes up,” Malpass said. “And the instability that you’re seeing in these countries worsens.”

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