Cooperation needed to avoid turning Covid-19 into deeper economic crisis, says economist
Private sector lenders to some of the world’s poorest countries should agree plans to reduce debt payments or risk turning the Covid-19 pandemic into a deeper economic crisis, the World Bank has said.
Speaking before the start of the G20 finance ministers meeting this weekend, the bank’s chief economist, Carmen Reinhart, said banks and hedge funds that lend to the developing world should cooperate with moves to cut debt payments, allowing poorer countries to pay for vital medical and food supplies.
China, which is the largest single creditor to developing world countries, would also need to be included in debt reduction plans, she said.
The call follows a report showing that the International Monetary Fund, which acts as a lender of last resort to financial stressed countries, has allowed hard-pressed countries to spend $11.3bn (£8.9bn) of IMF money intended for health budgets and food imports to service private sector debts. The World Bank is a Washington-based international organisation that lends to developing nations.
The G20 countries, a grouping formed after the last financial crisis and includes the UK and US with India, Indonesia and this year’s hosts Saudi Arabia, are to discuss how to reduced the debt burden on poorer countries.
Kristalina Georgieva, the managing director of the IMF, has praised the Paris Club of 19 western nations, which provide loan funding for developing world countries, for reducing debt demands.
Reinhart said: “I wrote earlier this year about the need for a debt standstill to allow countries to fight the pandemic rather than service debts. We are still waiting for the private sector and other lenders outside the Paris Club to step up.
She said it would be helpful if the G20 supported “debt suppression” to provide meaningful debt relief, but added that she was sceptical there would be progress this weekend.
“I have studied the last 200 years of financial crisis and one consistent theme is that creditors always want their money back,”Reinhart said.
“China is the largest official lender. It is larger than the Paris Club combined. There is a challenge knowing how much has been borrowed from China and the terms. It remains very opaque. So there is only partial information about the outstanding stock of debt.”
Reinhart said the World Bank was in discussions with Chinese lenders and was hopeful of making progress.
SOURCE: The Guardian