This year’s edition of the World Bank’s International Debt Statistics, to be released today Monday, October 12, will provide more detailed and more disaggregated data on sovereign debt than ever before in its nearly 70-year history. The World Bank Group President David Malpass said that to take a first step toward debt relief for the poorest countries, at the World Bank’s Spring Meetings in March, him, along with Kristalina Georgieva of the International Monetary Fund (IMF), proposed a moratorium on debt payments by the poorest countries.
“It was partly a response to COVID and the need for countries to have fiscal space, and also a recognition that a debt crisis was underway for the poorest countries. With endorsement by the G20, G7 and Paris Club, the Debt Service Suspension Initiative, or DSSI, took effect on May 1” he said. This support, Malpass said enabled a fast and coordinated response to provide additional fiscal space for the poorest countries in the world. As of mid-September, 43 countries were benefiting from an estimated $5 billion in debt-service suspension from official bilateral creditors, complementing the scaled-up emergency financing provided by the World Bank and IMF.
The DSSI has also enabled us to make significant progress on debt transparency, which will help borrowing countries and their creditors make more informed borrowing and investment decisions. “Many more steps are needed on debt relief. One avenue is to broaden and extend the current debt initiative so that there is time to work out a more permanent solution.”
The World Bank and the IMF have called on the G20 to extend the DSSI’s relief through the end of 2021, and they are highlighting the need for G20 governments to urge the participation of all their private and bilateral public sector creditors in the DSSI. “Private creditors and non-participating bilateral creditors should not be allowed to free-ride on the debt relief of others, and at the expense of the world’s poor” he cautioned.
Malpass who was speaking on the topic “Reversing the Inequality Pandemic” said a combination of factors has led to a wave of excessive debt in countries where there is no margin for error. Global financial markets, he continued, are dominated by low interest rates, creating a reach-for-yield fervour that invites excess. This is reinforced by an imbalance in the global debt system that puts sovereign debt in a unique category that favours creditors over the people in the borrowing country there’s not a sovereign bankruptcy process that allows for partial payment and reduction of claims.
“As a result, people, even the world’s poorest and most destitute, are required to pay their government’s debts as long as creditors pursue claims even so-called “vulture” creditors who acquire the distressed claims on secondary markets, exploit litigation, penalty interest clauses and court judgments to ratchet up the value of the claims, and use attachment of assets and payments to enforce debt service. In the worst cases, it’s the modern equivalent of debtor’s prison.”
Further, the political incentive and opportunity for government officials to borrow heavily has increased. Their careers benefit from the availability of long-maturity debt because the repayment cycle is often well after the political cycle. This undermines accountability for debt, making transparency much more important than in the past.
By Zainab Iyamide