Debt Relief Still Shallow, Many Creditors Not participating, W’Bank President Laments
*WBG, IMF To Propose Solutions To Debt Among Low-Income Nations
President of the World Bank Group, David Malpass, on Friday applauded the Development Committee in its forward looking steps to address the address the post-COVID challenges of the global economy.
He particularly lauded the adoption by the G20 nations of the Debt Service Suspension Initiative (DSSI), which has helped to make significant progress on debt transparency, lamenting however that “too many creditors are not participating (just as) too many creditors are not participating and debt relief remains shallow.”
Debt stock reduction, he noted in a series of tweets on his personal handle @DavidMalpass, “is key to providing light at the end of the tunnel for people in debtor countries.”
Continuing, he said “with the international financial architecture skewed in favour of the rich and creditor countries, the Development Committee is an important voice.
“We are working hard to help via emergency grants and loans, sound development programmes, and debt reduction for the world’s poorest.”
In a communiqué at the end of a virtual meeting earlier on Friday, the Committee expressed support for an extension of the DSSI by six months, and thereafter “examine, by the time of the 2021 WBG and IMF Spring Meetings, if the economic and financial situation requires to extend further the DSSI by another six months, with targeted complements to the April 2020 DSSI Term Sheet.”
It urged all official bilateral creditors to implement this initiative fully and in a transparent manner, while strongly encouraging “private creditors to participate on comparable terms when requested by eligible countries.
The DSSI, the committee noted further, is creating the “much needed fiscal space and supporting the financing programmes of the WBG and IMF for the poorest countries,” just as it encouraged Multilateral Development Banks to go further in their collective efforts in supporting the DSSI.
This, it continued, could include providing net positive flows to DSSI-eligible countries during the suspension period, including the extension period, stressing the need for the “WBG and IMF to continue supporting DSSI implementation, including by providing further details on the net new resources they are providing to each eligible country. We ask the WBG and the IMF to continue their work to strengthen quality and consistency of debt data and improve debt disclosure.
“Amid high public debt levels, shrinking economies, and rising fiscal pressures, we recognize that debt treatments beyond the DSSI may be required on a case-by-case basis,” it stressed further, welcoming the G20’s agreement in principle on a “Common Framework for Debt Treatments beyond the DSSI”, which is also agreed by the Paris Club.
The WBG and IMF, the committee added, should “continue to review the debt challenges of low-income countries and propose actions to address their fiscal and debt stress on a case-by-case basis. We also continue to encourage the WBG and IMF to review the debt challenges of middle-income countries and to explore customized solutions to their fiscal and debt stress on a case-by-case basis, including by providing additional resources in these challenging times, in line with the capital package commitments.”
The committee lamented the devastating effects of the COVID-19 pandemic on countries across the globe, “overwhelming health systems, disrupting productivity, threatening food security, multiplying job losses, and reducing incomes, particularly for the most vulnerable.”
The committee urged the World Bank Group to continue the response, “keeping a firm focus on the twin goals of ending extreme poverty and fostering shared prosperity in a sustainable manner, as well as on the IDA19 and capital commitments, while supporting progress toward the SDGs.
”The pandemic has resulted in the largest global economic contraction of the last eight decades: it is impacting developing, emerging and developed economies; increasing the global poverty rate; exacerbating inequalities; and damaging long-term economic growth prospects.
“The associated lockdowns, restrictions and continued uncertainty have caused investments, trade, and remittance flows to plummet; eroded jobs and human capital; kept children out of school; and pressured food and medical supply chains,” it added. The committee warned that “the humanitarian crisis can further exacerbate fragility, conflict, and violence as well as intensify risks, including in small island states. The economic crisis is threatening the lives and livelihoods of vulnerable populations, including women-led households, youth and the elderly, refugees and displaced people. It is also widening gender gaps and jeopardizing hard-won development gains and prospects for girls and children overall.”
The committee noted the WBG’s support for efforts by countries to strengthen their health systems, which it believes should continue while welcoming the US$12bn in financing recently approved for IDA and IBRD countries to support vaccine purchase and deployment.
It commended the Group’s exceptional delivery in the final quarter of fiscal year 2020, with US$45bn in commitments consisting of US$32bn from IBRD/IDA, US$11bn from IFC, and US$2bn from MIGA, including via their fast-track facilities, for operations in more than 100 countries.
“We welcome the second phase of IFC’s response, which will include the restructuring and recapitalizing of viable companies and financial institutions as well as support to health care value chains in emerging and developing economies.
“We also welcome the planned scaling up to US$35bn of IDA19 resources in fiscal year 2021 to help countries address their long-term development needs. The WBG should continue its efforts to deliver a bold and decisive response of up to US$160bn by June 2021. Considering the severity and likely long-term effects of the crisis, we encourage discussions on the WBG financial capacity beyond fiscal year 2021, to ensure that the WBG remains adequately capitalized to fulfill its mandate.”
It also commended the IMF for its rapid and effective crisis response, which has provided about US$100bn in assistance to over 80 countries during the pandemic, primarily through emergency financing facilities, urging the fund to deploy all available tools and resources to enable members achieve a durable exit from the crisis while building more resilient and inclusive economies.