President of the World Bank, David Malpass, has said the coronavirus pandemic could force some countries particularly poor countries into debt crisis.
According to the World Bank boss, investors should be ready to provide some form of debt relief which could include a complete cancellation of debts owed by poor and developing countries as some had already entered a downward spiral of weaker growth and financial trouble.
“It is evident that some countries are unable to repay the debt they have taken on. We must therefore also reduce the debt level. This can be called debt relief or cancellation,” Malpass told Handelsblatt business daily in an interview.
“It is important that the amount of debt is reduced by restructuring,” Mr Malpass added making reference to similar steps taken in previous financial crises such as in Latin America and the so-called HIPC initiative for highly indebted countries in the 1990s.
He also warned that the Covid-19 pandemic could push 100 million people into extreme poverty, and urged private banks and investment funds to also get involved in averting the impending crisis.
“These investors are not doing enough and I am disappointed in them. Also, some of the major Chinese lenders did not get involved enough. The effect of the aid measures is therefore less than it could be,” the World Bank head said.
“The enormous budget deficits and debt payments are overwhelming these economies. In addition, the banks there are getting into difficulties due to bad loans,” Malpass added.
Rich countries last month backed an extension of the G20’s Debt Service Suspension Initiative (DSSI), approved in April to help developing nations survive the coronavirus pandemic, which has seen 43 of a potential 73 eligible countries defer $5 billion in “official sector” debt payments.
