By Yero S. Bah
The World Bank Group President Mr. David Malpass, speaking at the 2020 Annual Meetings Plenary, has said that the latest economic and poverty data showed that desperate inequality is being caused by the COVID-19 pandemic and economic shutdowns.
He noted also that 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. Extreme poverty may rise by 150 million by next year, he added.
As the WB Group chief explained, immediately after their spring meetings, shareholders were able to launch health emergency programs in 111 countries and began a surge in their grants that are highly concessional lending that will reach the limits of their capital structure and commitment authority.
“As part of this effort, we expect to provide over $50 billion in grants or highly concessional credits by June 2021, helping provide large net positive flows to the poorest and most fragile countries and people,” Malpass disclosed.
In March, the G20 endorsed a vital debt relief program for the poorest countries, giving people a ray of hope, he recalled. DSSI helped increase fiscal resources for over 40 countries and created more transparency on the overwhelming debt burden, and President Malpass promised this week, they published more granular data on debtors and creditors which would help identify problems and work toward sustainability.
He continued: “Our goals for debt relief in the spring meetings were clear–fiscal savings for the poorest countries, greater debt transparency, and a path forward for countries in debt distress. We’re making progress but not nearly enough. The DSSI extension being agreed today is welcome, and the term sheet has been strengthened in important ways.”
He however stated that, some core DSSI-related problems are still unresolved such as the lack of participation by private creditors and incomplete participation by some official bilateral creditors, and he underlined that the bigger challenge is the need to look beyond DSSI.
“It’s 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 WB Group top official informed. He further said the DSSI has been a stopgap to provide fiscal resources and greater transparency while a longer-term solution for the debt crisis could be developed.
President Malpass observed that, the tendency in past debt crises is for countries in debt distress to go through a series of ineffective debt rescheduling that leaves them weaker; that creditors may eventually allow them to get to a debt reduction process, but at a tremendous cost to the poor. “We need to work better and faster this time,” he posited.
Meanwhile, the World Bank Official urged that while there has been G20 discussion of a common framework on debt treatment, there needs to be that important sense of urgency that it doesn’t just kick the can. Noting the urgency of the debt crisis, he reported that the IMF and World Bank have proposed that there is a need for a joint action plan on debt reduction for the most indebted IDA countries.
“We’ll discuss it this week with Governors during our Annual Meetings. It’s urgent to make rapid progress on a framework because the risk of disorderly defaults is rising,” Malpass stated.
Besides, on a positive note, he’s happy that their Board has approved $12 billion package to expand their fast-track COVID response for the purchase and distribution of COVID-19 vaccines, tests and treatments.
The World Bank Executive hinted that, the challenges ahead are staggering and more need to be done. “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 intimated.
Malpass argued, however, that IDA lending would have to decline in the next two years even though the latest forecasts, including those just announced by the IMF, suggest that the reduction in economic activity will extend well into subsequent years, adding they are proposing to IDA Deputies later this month a $25 billion supplemental COVID-19 Emergency Financing Package. “We’ll be grateful, as always, for your support,” he intimated.
In the midst of a once-in-a-century crisis, Malpass is still confident that sustainable solutions would emerge by embracing constructive change.
