Poor countries advised to restructure external debts

KHARTOUM, Sudan

The World Bank has urged low- and middle-income countries to consider restructuring their debts when the Debt Service Suspension Initiative (DSSI) expires in the next three months so that they can sustain economic recovery amid the pandemic.

World Bank President David Malpass briefing the media on April 11, 2019, in Washington, DC. World Bank over half of the world’s poorest countries are now in external debt distress and the situation could worsen.

According to the bank over half of the world’s poorest countries are now in external debt distress and the situation could worsen if commodity prices are volatile, interest rates increase or investors lose confidence in emerging markets.

The bank’s president, David Malpass, said when the DSSI expires at the end of this year low-income countries will resume debt service payments which would reduce their fiscal space and limit their ability to purchase vaccines and to finance other priority expenditures.

“It is time to pursue a gradual and people oriented fiscal consolidation and to restructure unsustainable debts,” Malpass said in the Sudanese capital Khartoum on Thursday ahead of the 2021 Annual International Monetary Fund-World Bank meetings to be held from October 11 to 17.

He said global co-operation including with the private sector is required to provide debt relief to the poorest countries and fund growth enhancing investments.

The Bretton Woods institutions urged G20 countries to establish the DSSI to help countries concentrate their resources on fighting the Covid-19 pandemic and safeguard the lives and livelihoods of millions of the most vulnerable people.

Since it took effect on May 1, 2020, the initiative has delivered more than $5 billion in relief to more than 40 eligible countries

A total of 73 countries are eligible for a temporary suspension of debt-service payments owed to their official bilateral creditors.

World Bank lauded Sudan’s process in macroeconomic stabilisation two years after the transitional government inherited a deeply damaged economy and society that suffered decades of conflict and isolation.

“As people of Sudan resolved to break with the past, Sudan faced extraordinary headwinds from the Covid-19, from the locust plague, from unprecedented floods and from the inflow of refugees escaping conflicts from across the border.

‘‘Yet the country pressed forward with good reforms, re-engaging with the international community.

“It is great pleasure for me to be speaking today from Africa in this challenging time for the continent and for the world. These are extraordinary difficult times for Sudan and for Africa and millions of people around the World,” said Malpass.

Sudan has taken difficult steps to put its people on the path to long term prosperity after decades of international isolation.

This is a very high-level visit by a World Bank official since the country reached the Heavily Indebted Poor Countries (HIPC)decision point in June this year — an important milestone that will enable the country to clear nearly all of its estimated $50 billion in external debt.

Sudan is supported by the International Development Association (IDA), the World Bank’s fund for the poorest countries.

“In these troubling times of upheaval, the challenge for the people and for the development community is to shoulder the crisis, resume development and lay a strong foundation for the future,” said Malpass.

“In many places around the world poverty is rising, living standards and literacy rates are falling while nutrition and healthcare are sliding backwards

According to the bank, low-income countries are facing high inflation, too few jobs, scarcity of vaccine and food and high cost of adapting to climate challenge they did not create.

“To combat reversals in development we will need strong new approaches suited for these very challenging times.

‘‘We need to focus our efforts more to set clear priorities by measuring what works and what doesn’t and to rapidly scale up successes.

“The Covid-19 crisis has resulted in increased poverty rates and pushed 100 million people into extreme poverty with several hundred million more becoming poor of which many of them are in middle income countries.”

According to the bank, human capital accumulation has stalled with most schools closing for months.

The global pandemic also imposed a heavy toll on firms and governments, with business closures skyrocketing while those firms and that remained active are heavily indebted or arrears.

“Governments have large fiscal deficits often pushing public debt to dangerous high levels that require especially careful investment decisions by both the public and private sectors,” he said.