The debt burden of the world’s low-income countries rose 12 per cent to a record $860 billion in 2020 as the Covid-19 pandemic worsened the financial strain on these countries, according to a report by the World Bank.
Governments around the world responded with fiscal, monetary and financial stimulus measures to cushion the impact of the pandemic but the move also resulted in a mounting debt burden on some of the world’s poorest countries, the lender said on Monday.
“We need a comprehensive approach to the debt problem, including debt reduction, swifter restructuring and improved transparency,” said World Bank Group president David Malpass.
“Sustainable debt levels are vital for economic recovery and poverty reduction.”
The damage from the Covid-19 pandemic – which unleashed the worst recession since the 1930s Great Depression – has been greater in middle-income and poor countries, reversing gains made in reducing poverty levels over the past two decades, a report by the World Bank last year found.
Renewed international support is needed for developing countries facing the threat of a “lost decade” amid an uneven global economic recovery, the UN Conference on Trade and Development said last month.
Even prior to 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 World Bank said.
External debt stocks of low and middle-income countries combined rose 5.3 per cent in 2020 to $8.7 trillion.
The World Bank also said that the rise in external debt outpaced the countries’ gross national income 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.
Net inflows from multilateral creditors to low and middle-income countries touched a decade-long high in 2020, when it rose to $117bn, the report said. Net debt inflows of external public debt to low-income countries also rose 25 per cent to $71bn last year, also the highest level in a decade.
Multilateral creditors, including the International Monetary Fund, contributed to $42bn in net inflows, while bilateral creditors accounted for an additional $10bn, the World Bank said.
“Economies across the globe face a daunting challenge posed by high and rapidly rising debt levels,” said Carmen Reinhart, senior vice president and chief economist of the World Bank Group.
“Policymakers need to prepare for the possibility of debt distress when financial market conditions turn less benign, particularly in emerging market and developing economies.”
The G20’s Debt Service Suspension Initiative, which suspended debt repayments from some of the poorest countries, is set to expire by the end of this year.
