World Bank demands faster G20 debt relief as poor nations squeezed
The pandemic-induced recession in 2020 left half of low-income countries in or at high risk of debt distress, the World Bank said in its latest Global Economic Prospects report
Poorer developing nations are likely to need faster G20 debt relief, the World Bank said on Tuesday, as an increasing number face being squeezed by rising indebtedness and slowing growth.
The pandemic-induced recession in 2020 left half of low-income countries in or at high risk of debt distress, the World Bank said in its latest Global Economic Prospects report.
Debt levels in emerging market and developing economies had risen at the fastest pace in three decades, the report said, and while growth in low income economies is projected to strengthen in 2022 to 4.9% and in 2023 to 5.9%, income per capita is forecast to remain below pre-pandemic levels this year in half of them.
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"It is likely that further debt relief will be needed if growth remains subdued and the global community will need to stand ready to provide this in an equitable but efficient way," the World Bank's report concluded.
The G20 common framework, launched in November 2020, aims to provide debt relief chiefly through maturity extensions and interest rate reductions for countries eligible for repayment moratoriums under the Debt Service Suspension Initiative (DSSI).
However, progress has been sluggish.
"The framework needs to provide faster debt relief to be effective — the first country that requested treatment under the Framework made the request in January 2021 and the process has yet to be completed," the report said.
Formalising implementation with a clear timeline and transparent rules could help speed up the process, while debtor countries ought to implement policies to shore up fiscal frameworks and increase debt transparency, the World Bank said.
High and rising debt levels also meant markets and institutions were increasingly vulnerable to financial stress, especially in countries where weak fiscal positions and high sovereign debt left much less scope for an effective response.
The World Bank highlighted China, where financial stress could trigger a disorderly deleveraging of the property sector.
"A turbulent deleveraging episode could cause a prolonged downturn in the real estate sector, with significant economy-wide spillovers through lower house prices, reduced household wealth, and plummeting local government revenues," it said.
