The World Bank President, David Malpass, has advocated that debt cancellation is needed by the poorest countries as the COVID-19 pandemic could trigger a debt crisis in some nations.
While making the disclosure during a media interview on Sunday, Malpass said investors must be ready to grant some form of relief that could also include debt cancellation.
The World Bank boss was quoted during the interview as saying, “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.’’
Malpass spoke about similar steps in previous financial crises such as in Latin America and the so-called HIPC initiative for highly indebted countries in the 1990s.
It can be recalled that rich countries last month supported an extension of the G20’s Debt Service Suspension Initiative (DSSI), approved in April to help developing nations survive the coronavirus pandemic, which has seen 43 of potential 73 eligible countries defer $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 coronavirus pandemic.
He renewed his call for private banks and investment funds to also get involved amid warnings that the pandemic could push 100 million people into extreme poverty.
Malpass 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.’’
He warned 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 also added, “The enormous budget deficits and debt payments are overwhelming these economies. In addition, the banks there are getting into difficulties due to bad loans.’’