The debt burden of low-income countries rose last year

The debt burden of low-income countries last year rose 12 percent to a record $ 860 billion (€ 743.04 billion). The reason was the massive stimulus by which their governments responded to the crisis caused by COVID-19. This was announced on Monday by the President of the World Bank (WB) David Malpass, who also called for a "comprehensive plan" to solve this problem. "Sustainable debt levels are vital for economic recovery and poverty reduction," he said. Massive stimulus packages in the fight against the new coronavirus pandemic have exacerbated the high debt levels of low-income countries. Resolving the issue will require relief from creditors, Malpass said. The situation is urgent because the G20 initiative (the world's 20 largest economies), which last year agreed to allow poor countries to defer debt payments during the fight against the pandemic, will expire at the end of this year. "We need a comprehensive approach to the problem, including debt reduction, faster restructuring and increased transparency," Malpass said. Data released by the SB on Monday showed that debt indicators deteriorated in all regions and in all low- and middle-income countries. As early as the beginning of 2020, many developing countries had high external debt, making them vulnerable, according to a World Bank report that, following the outbreak of the pandemic, governments unleashed unprecedented resources to halt the spread of the virus and limit the economic downturn. The report states that the external debt of low- and middle-income countries increased by 5.3 percent to $ 8.7 trillion in all regions in 2020. Growth in external debt outpaced growth in gross national income (GNI) and exports, with China's external debt-to-GNI ratio rising by five percentage points to 42% in 2020 and their debt-to-export ratio rising to 154 percent in 2020 from 126 percent in 2019. According to Malpass, therefore, there is an urgent need for debt restructuring, given that the G20 Debt Suspension (DSSI) initiative will expire at the end of this year. However, so far only three countries have requested a deferral of DSSI payments: Ethiopia, Chad and Zambia. The report showed that net inflows from multilateral creditors to low- and middle-income countries rose to $ 117 billion in 2020, the highest level in a decade. Net lending to low-income countries rose 25 percent to $ 71 billion, the highest level in a decade, with the World Bank and the International Monetary Fund also increasing support for the most vulnerable states. SB and other multilateral creditors provided them with $ 42 billion. Carmen Reinhart, the World Bank's chief economist, pointed out that the problems facing highly indebted countries could worsen with rising interest rates.