The coronavirus pandemic could trigger a debt crisis in some countries, so investors must be ready to grant some form of relief that could also include debt cancellation, World Bank President David Malpass was quoted as saying.
“It is evident that some countries are unable to repay the debt they have taken on. We must, therefore, also reduce the debt level. This can be called debt relief or cancellation,” Malpass told Handelsblatt business daily in an interview published on Sunday.
“It is important that the amount of debt is reduced by restructuring,” Malpass added.
He pointed to similar steps in previous financial crises, such as in Latin America and the so-called “Highly Indebted Poor Countries” initiative for countries with unsustainable debts in the 1990s.
Rich countries backed an extension last month of the G20’s Debt Service Suspension Initiative, approved in April to help developing nations survive the coronavirus pandemic, which has seen 43 of a potential 73 eligible countries defer $5bn in debt payments.
Malpass warned in August that the pandemic could push 100 million people into extreme poverty. In his latest comments, he renewed his call for private banks and investment funds to get involved, too.
“These investors are not doing enough and I am disappointed with them. Also, some of the major Chinese lenders did not get enough involved. The effect of the aid measures is, therefore, less than it could be,” the World Bank head said.
Malpass also said that the pandemic could trigger another debt crisis, as some developing countries had already entered a downward spiral of weaker growth and financial trouble.
“The enormous budget deficits and debt payments are overwhelming these economies. In addition, the banks there are getting into difficulties due to bad loans,” Malpass added.