Debt levels in least developed countries soared even before Covid-19

12 Oct 20

The world’s poorest countries were at risk of debt crises even before Covid-19, with their debts climbing to the highest ever levels in 2019.

 

That’s according to a new report from the World Bank, which found that debt in the 73 countries eligible for G20 debt relief during the pandemic rose by 9.5% last year, to reach a record $744bn.

According to the report, the pace of debt accumulation in these countries was nearly twice the rate of other low and middle-income countries in 2019.

The World Bank said this highlighted “an urgent need for creditors and borrowers alike to collaborate to stave off the growing risk of sovereign debt crises triggered by the Covid-19 pandemic”.

It warned that debt restructurings could become more complex for poor countries in the future, because of a large increase in lending by private creditors, as well as a “marked increase” in lending by middle-income countries (such as China).

The report said private sector participation in helping poor countries reach sustainable debt levels would be “critical”.

“Achieving long-term debt sustainability will depend on a large-scale shift in the world’s approach to debt and investment transparency,” said World Bank Group president David Malpass.

“The time has come for a much more comprehensive approach to tackling the debt crisis facing the people in the poorest countries – one that involves debt-service suspension as well as broader efforts, such as debt-stock reduction and swifter debt-restructuring, grounded in greater debt transparency.”

Increasing transparency would help poorer countries assess and manage their external debt through the current crisis and beyond, the World Bank said, and would help international institutions analyse their debt levels and recommend ways to get them back on a sustainable path.

“Unsustainable debt burdens have the potential to siphon off resources these countries need immediately to fund the health crisis and accelerate economic recovery efforts,” Malpass said in his foreword to the report.

“The overhang of debt may slow investment and growth for years to come – a burden on the poor that now needs to be addressed by creditors across the world taking prompt steps to permanently reduce unsustainable debt stocks for the poorest countries.”

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