The World Bank President, David Malpass, has advocated the need for debt cancellation for the poorest countries as the COVID-19 pandemic could trigger a debt crisis in some nations.
Malpass, while making a strong case for debt forgiveness for the affected countries globally during a media interview on Sunday, said investors must be ready to grant some form of relief that could also include debt cancellation.
The foremost banker who recalled similar steps in previous financial crises such as in Latin America and the so-called HIPC initiative for highly indebted countries in the 1990s, projected that some countries would default in their debt obligations given the impact of the pandemic on their economies, hence the need for debt cancellation or restructuring for them.
He explained: “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. It is important that the amount of debt is reduced by restructuring.’’
It would be recalled that rich countries had in September supported an extension of the G20’s Debt Service Suspension Initiative (DSSI), approved in April to help developing nations brace the Coronavirus pandemic odds.
As a result of the rich countries’ stance, 43 of potential 73 eligible countries had deferred $5 billion in official sector debt payments.
The Debt Service Suspension Initiative will help free resources for developing countries to respond to the challenges posed by the pandemic.
Also, apparently concerned about the likelihood that 100 million people could be pushed into extreme poverty as a result of the COVID-19 saga, Malpass renewed his call for private banks and investment funds to also get involved amid warnings that the pandemic could push
The banker said: “These investors are not doing enough and I am disappointed with them. Also, some of the major Chinese lenders did not get enough involved. The effect of the aid measures is therefore less than it could be’’
While cautioning that the pandemic could trigger another debt crisis as some developing countries had already entered a downward spiral of weaker growth and financial trouble, the World Bank boss noted that 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.