The World Bank has said that despite the response by governments around the world to the Covid-19 pandemic with massive fiscal, monetary, and financial stimulus packages, the debt burden of low-income countries rose by 12% to a record $860 billion in 2020.
The World Bank International Debt Statistics 2022 report showed that the external debt stocks of low- and middle-income countries combined rose 5.3% in 2020 to $8.7 trillion, affecting countries in all regions.
The report also indicated that the rise in external debt outpaced Gross National Income (GNI) and export growth, with the external debt-to-GNI ratio, excluding China, rising five percentage points to 42% in 2020, while their debt-to-export ratio surged to 154% in 2020 from 126% in 2019.
World Bank President David Malpass said before the pandemic that many low- and middle-income countries were vulnerable, with slowing economic growth and public and external debt at elevated levels.
He indicated that the core problem was sovereign debt and raised concern that there was no bankruptcy process, international bankruptcy court, or a process to work with countries whose debt has become unsustainable.
“We need a comprehensive approach to the debt problem, including debt reduction, swifter restructuring and improved transparency,” Mr Malpass said, noting that sustainable debt levels were vital for economic recovery and poverty reduction.
He added: “Restructuring efforts were urgently needed given the expiration at the end of this year of the Group of 20 major economies’ Debt Service Suspension Initiative (DSSI), which has offered temporary deferral of debt payments”.
The G20 launched the Debt Service Suspension Initiative (DSSI) to provide temporary liquidity support for low-income countries and agreed to extend the deferral period through the end of 2021.
To this end, the G20 and Paris Club of official creditors launched a Common Framework for Debt Treatments last year to restructure unsustainable debt situations and protracted financing gaps in DSSI-eligible countries, but only three countries – Ethiopia, Chad and Zambia – have applied thus far.
Overall, in 2020, net inflows from multilateral creditors to low- and middle-income countries rose to $117 billion, the highest level in a decade.
Net debt inflows of external public debt to low-income countries rose 25% to $71 billion, also the highest level in a decade.
Multilateral creditors, including the IMF, provided $42 billion in net inflows while bilateral creditors accounted for an additional $10 billion.