Long extensions of debt beyond current maturity dates are among the options Group of 20 nations and others are considering to help poor countries relieve the stress of unmanageable debt burdens, World Bank President David Malpass said.
(Bloomberg) — Long extensions of debt beyond current maturity dates are among the options Group of 20 nations and others are considering to help poor countries relieve the stress of unmanageable debt burdens, World Bank President David Malpass said.
The outgoing leader of the lender will co-chair a so-called roundtable gathering of sovereign and private creditors in India next week with the hope of fixing the bottlenecks that have prevented quick restructuring of the debt of fragile nations.
Maturity extensions “are on the table in the current process, and there’ll be many more options that are available to creditors that give fair burden-sharing,” Malpass said in an interview on CNN International on Thursday. “Vital in this is participation by all of the official and the commercial creditors.”
“For those countries that have unsustainable debt, there needs to be a successful, rather rapid process to reduce the debt burden that can be done through lengthening out the debt payments at a low interest rate, a very favorable reprofiling, or it can be done through actual debt reduction,” he said.
The in-person gathering of fiscal and monetary officials over debt issues on the sidelines of the Group of 20 meetings in Bangalore next week will follow this week’s virtual meeting of deputies to deal with global debt issues.
The World Bank, International Monetary Fund and 2023 Group of 20 leader India are bringing together creditors including China with borrowing countries to try to hash out solutions for nations with unsustainable debt levels.
Arriving at consensus has been difficult: the G-20’s blueprint for restructuring the loans — known as the Common Framework and set up in 2020 — has proven ineffective so far amid disagreements between the traditional Paris Club lender nations and China, which is now the biggest bilateral lender to developing countries.
Of the 70 poor nations eligible for relief under the framework, only four have applied to use it and only one — Chad — concluded the process but no longer needed help by the time of conclusion.
Delays have partly stemmed from disagreements between the rich countries that have traditionally guided sovereign debt restructurings and China.
With persistent inflation and weak economic activity or recessions, the debt burden of poor nations continues to grow — the 75 poorest countries owed their creditors about $326 billion at the end of 2021, World Bank data released in December showed.
Malpass’s comments echo those of a top IMF official earlier this week. Ceyla Pazarbasioglu, the director of the fund’s strategy, policy, and review department, said that debt restructurings can be accomplished in multiple ways, including through immediate haircuts or via long-term concessional loans with long grace periods, and that the debt roundtable will seek to reach understandings on how countries can come together for the shared objective of debt relief.
Key to getting the framework to function is getting private creditors like banks accepting common, or comparable, restructuring terms to government lenders.
“So far, the private sector has been standing away from this process and I think needs to be drawn in earlier and more fully into the process,” Malpass said. “We’ll be trying to do that.”
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