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Business News of Thursday, 15 October 2020

Source: Economic Confidential

World Bank, IMF Plan debt reduction for IDA countries

The World Bank and International Monetary Fund (IMF), have proposed to undertake a joint action plan on debt reduction for the most indebted International Development Association (IDA) countries.

Mr David Malpass, the President, the World Bank Group, said this on Wednesday during a virtual meeting with the G20 Finance Ministers and Central Bank Governors at the ongoing orld Bank annual meetings in at Washington D. C.

Malpass said that it was urgent to make rapid progress on a framework because the risk of disorderly defaults was rising.

He said that the bank’s latest economic and poverty data showed that desperate inequality was being caused by the COVID pandemic and economic shutdowns.
“The recession in advanced economies is less severe than had been feared but in most developing economies, it has become a depression, especially for the poorest and extreme poverty may rise by 150 million by 2021.

“Soon after our spring meetings, we were able to launch health emergency programmes in 111 countries and began a surge in our grants and highly concessional lending that will reach the limits of our capital structure and commitment authority.

“As part of this effort, we expect to provide over 50 billion dollars in grants or highly concessional credits by June 2021, helping provide large net positive flows to the poorest and most fragile countries and people.”

The president recalled that in March, the G20 endorsed a vital debt relief programme for the poorest countries, giving people a ray of hope.

He said that the Debt Service Suspension Initiative (DSSI) helped increase fiscal resources for over 40 countries and created more transparency on the overwhelming debt burden.

According to him, the goals for debt relief are fiscal savings for the poorest countries, greater debt transparency and a path forward for countries in debt distress.

“We are making progress but not nearly enough. The DSSI extension being agreed today is welcome and the term sheet has been strengthened in important ways.
“However, some core DSSI-related problems are still unresolved, notably a lack of participation by private creditors and incomplete participation by some official bilateral creditors.

“The bigger challenge is the need to look beyond DSSI. It is important to note that the DSSI defers payments into the future but doesn’t reduce them.
“Interest charges compound quickly on the deferred amounts, leaving countries with even more debt.

“The DSSI has been a stopgap to provide fiscal resources and greater transparency while a longer-term solution for the debt crisis can be developed,” he said.
Malpass said that the tendency in past debt crises was for countries in debt distress to go through a series of “ineffective debt rescheduling that leaves them weaker’’.

He said that creditors might eventually allow them to get to a debt reduction process but at a tremendous cost to the poor, adding that they needed to work better and faster this time.

“On a positive note, I am happy to announce that , our board has approved a package of up to 12 billion dollars to expand and fast-track COVID response for the purchase and distribution of COVID-19 vaccines, tests and treatments.

“The scale of the challenges ahead is staggering, so we need to do more. With the strong support of its shareholders, IDA has frontloaded IDA-19 resources to the fullest possible extent as a key part of the surge in our commitments this fiscal year.”

He, however said that IDA lending would have to decline in the next two years even though the latest forecasts, including those just announced by the IMF, suggests that the reduction in economic activity would extend well into subsequent years.
Malpass said that the bank was proposing to IDA deputies later in October, a 25 billion dollar supplemental COVID Emergency Financing Package.

The IDA, a member of the World Bank Group, is an international financial institution with 173 member countries.

It offers concessional loans and grants to the world’s poorest developing countries.
The 2020 Annual Meetings of the IMF and the World Bank Group holding in Washington D. C. began on Oct. 12 and will end on Dec. 16.

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