The World Bank will push to resolve the mounting debt problems of poor countries and, along with the International Monetary Fund, will present concrete proposals to address some of the biggest restructuring roadblocks at this week’s Spring Meetings.
It will introduce the ideas at the Global Sovereign Debt Roundtable, a meeting led by the Bretton Woods institutions and Group of 20 chair India in Washington, President David Malpass said in a blog post on Sunday.
There are two areas where Malpass sees possibility for a breakthrough, he said on a call with reporters on Monday. One is suspending debt-service payments at the start of the process, which would give incentives for reaching a deal and protect debt repayment ability.
The other is on more frequently invoking a rarely used policy called lending into arrears. That allows the IMF to lend into arrears if it deems prompt help is essential. The fund also needs to see the country pursuing appropriate policies and making good-faith efforts to reach an agreement with creditors, so that a single creditor can’t block IMF lending.
Debt overhang
“Right now, the debt overhang is just paralysing some of the countries,” Malpass said.
Other proposals including sharing the joint World Bank-IMF debt sustainability analysis for nations with all creditors involved in discussions at the same time, with increased transparency and information sharing helping to calculate the size of debt relief needs, Malpass said. China, the biggest sovereign creditor to developing nations, has raised questions about the institutions’ assumptions, slowing the process.
Restructuring also would be accelerated and strengthened by creating clear timelines for steps including the formation of creditor committees, the provision of financing assurances and the signing of the actual restructuring agreements, Malpass said.
On individual country cases, Malpass said the Zambia official creditor committee, led by China and France, plans to meet the week of April 16, and that he’s looking for a “good outcome”. On Ghana, he said the advance of technical meetings is a positive sign, and highlighted the need for faster progress on Ethiopia.
“With the debt crisis growing larger, we must approach the meetings in the week ahead with resolve and urgency,” Malpass said. “Now is the time for all parties to turn words into action.”
“Right now the debt overhang is just paralysing some of the countries,” Malpass said on the Monday call.
More than half of the world’s low-income countries are at high risk of debt distress or already in it, and several have defaulted. But despite the G-20 largest economies having agreed in 2020 to a plan called the Common Framework to smooth the process of restructuring loans that governments could no longer afford to service or repay, not a single nation has actually gotten relief under it so far.
Delays have partly stemmed from disagreements between the rich countries that have traditionally guided sovereign debt restructurings and China, which is now a major international creditor. Beijing has indicated that it would be more equitable if loans made by the World Bank, where the US is the largest shareholder, are included in any restructuring. The institutions have resisted the demand, along with many developed nations, most vocally the US. The institutions have resisted the demand, along with many developed nations, most vocally the US.
Malpass said that the World Bank expects global economic growth to slow to 2 per cent this year, though that’s an upgrade from the bank’s January forecast of 1.7 per cent based on China’s reopening and better performance in advanced economies.
