World Bank Says Debt Of Low-Income Countries Has Risen To Record Level

CMC:– The World Bank says the debt of low-income countries, including those in the Caribbean, rose to a record US$860 billion last year.

The Washington-based financial institution said while governments around the world responded to the coronavirus (COVID-19) pandemic with massive fiscal, monetary and financial stimulus packages, the resulting debt burden of the world’s low-income countries rose 12 per cent.

According to a new World Bank report, even before the pandemic, many low- and middle-income countries were in a vulnerable position, with slowing economic growth and public and external debt at elevated levels.

The report says external debt stocks of low- and middle-income countries in the Caribbean and other places combined rose 5.3 per cent in 2020 to US$8.7 trillion.

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According to the new International Debt Statistics 2022 report, an encompassing approach to managing debt is needed to help low- and middle-income countries assess and curtail risks and achieve sustainable debt levels.

“We need a comprehensive approach to the debt problem, including debt reduction, swifter restructuring and improved transparency,” said World Bank Group President David Malpass, adding “sustainable debt levels are vital for economic recovery and poverty reduction.”

The report says the deterioration in debt indicators was widespread and impacted countries in all regions.

Across all low- and middle-income countries, the rise in external indebtedness outpaced Gross National Income (GNI) and export growth.

Low- and middle-income countries’ external debt-to-GNI ratio, excluding China, rose to 42 per cent in 2020 from 37 per cent in 2019 while their debt-to-export ratio increased to 154 per cent in 2020 from 126 per cent in 2019, the report says.

In response to the unprecedented challenges posed by the pandemic and at the urging of the World Bank Group and the International Monetary Fund, in April 2020, the G20 launched the Debt Service Suspension Initiative (DSSI) to provide temporary liquidity support for low-income countries.

The report notes that the G-20 countries agreed to extend the deferral period through the end of 2021.

In November 2020, the G20 agreed on a Common Framework for Debt Treatments beyond the DSSI, an initiative to restructure unsustainable debt situations and protracted financing gaps in DSSI-eligible countries, the report says.

Overall, in 2020, the report says net inflows from multilateral creditors to low and middle-income countries rose to US$117 billion, the highest level in a decade.

Headline photo courtesy Towfiqu Barbhuiya (Unsplash)

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