Chief Economist World Bank calls for new approach to managing debt crisis
On April 25, 2566, Reuters reported that World Bank Chief Economist Indermit Gill (World Bank) calls for new approach to deal with deepening debt crisis which many countries are facing It includes steps to consider domestic borrowing factors in assessing the sustainability of a country's debt.
Indermit Gill told Reuters that the joint framework established by the Group of 20 major economies to help the poorest countries had resulted in only one area of progress. This is because it does not account for the 61% of developing countries' foreign debt held by private creditors. which is a greater proportion
While only four countries - Zambia, Chad, Ethiopia and Ghana - applied for relief under the G4 mechanism established in late 20 during the COVID-2563 pandemic. This is despite the International Monetary Fund (IMF) estimating that another 19% of the low end are in or at high risk of debt distress. And only Chad has reached a debt relief agreement with its creditors.
Meanwhile, interest rates are rising in the United States. and other advanced economies This will cause money to flow out of emerging markets for a while. Just like in the 1980s
“Debt levels are starting to hurt potential customers. It puts them into the wrong cycle. Many of these countries are already in debt crises, such as Egypt.”
For example, approximately two-thirds of Ghana's foreign debt is privately owned. But the framework focuses on the Paris Club's official creditors and emerging lenders such as China, which is now the world's largest creditor. There is also a lack of common rules for dealing with countries' debt.
He said a new Sovereign Debt Roundtable was established to address challenges in the debt relief process bringing together debtor countries and private sector players. But it got only a little result.
IMF officials said China and other participants share a common understanding that multilateral development banks can provide net positive flows of credit and aid to countries in need.
But Gill said China was unlikely to see it as binding because the meeting was not intended to be a decision-making mechanism. The issuance of Brady bonds, which are public debt instruments denominated in dollars and backed by the U.S. Treasury. Because during the debt crisis of the 1980s, it may have helped correct some of these shortcomings. Many of those bonds have already been retired. which indicates success
One key issue remains how the IMF and World Bank assess the sustainability of countries' debt, excluding domestic borrowing. This masks exorbitant levels of borrowing. This happens in part because developing countries have built up their own financial sectors. But there is no coherent sustainable fiscal framework.
