May Have to Forgive Poor Countries’ Debts: World Bank

David Malpass says that investment funds and private banks can do more to support the struggling countries during the coronavirus pandemic.

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The global economy has been hit badly by the coronavirus pandemic, and several countries are prone to face a debt crisis. In this condition, investors must be ready to “grant some form of relief that could also include debt cancellation,” the World Bank President David Malpass said. This comes in the wake of increasing debt on the developing countries that have imposed lockdowns or regulated movement to control the spread of the novel coronavirus.

Important to reduce the debt by restructuring

Malpass gave an interview to Handelsblatt business daily that was published on Sunday, where he was quoted saying, “It is evident that some countries are unable to repay the debt they have taken on. We must, therefore, also reduce the debt level. This can be called debt relief or cancellation.” It is true that the sudden outbreak of the coronavirus has left the world desperate to find ways of coping up and staying afloat, in which even the largest economies are failing, and the developing countries are greatly struggling. Malpass further added, “It is important that the amount of debt is reduced by restructuring.” Malpass had also referred to similar measures in the previous financial crisis in the 1990s for the “heavily indebted poor countries.” The G20 Debt Service Suspension Initiative, approved in April, backed by major rich countries saw 43 of 73 potential eligible countries defer $5 billion in debt repayments.

Also read: The Indian economy expected to shrink by 5.9% in 2020 amidst the coronavirus pandemic: UN report

Malpass has been continuously issuing warnings since August that about 100 million people can be pushed into extreme poverty due to the pandemic. In his closing statements, he urged the private banks and investment funds to get closely involved in this crisis. The official of the World Bank declared, “These investors are not doing enough, and I am disappointed. In addition, some of the major Chinese lenders have not been sufficiently involved. The effect of aid measures is, therefore, less than it could be.” As the developing countries enter a downward spiral of weaker growth and financial trouble, the pandemic can trigger another debt crisis. He added, “The enormous budget deficits and debt payments are overwhelming these economies. In addition, the banks there are getting into difficulties due to bad loans.”

Coronavirus clutching its grasp on the world

While several vaccines are under clinical trial right now, the coronavirus continues to spread across the world, ever since its speculated origin in December 2019. Currently, there are 35,786,851 COVID-19 cases registered all over the world, out of which 26,909,405 have recovered, and 1,049,816 have died. There are 7,827,630 infected cases active at present, and 66,984 of them are critical. Global leaders have been contracting the virus, recently including the president of the United States, Donald Trump.

The Policy Times on the issue,

  • Many countries have still not seen the peak of coronavirus cases, and thus, we are incapable of fathoming the extent of the financial crisis approaching us.
  • Economists around the world are trying to analyze the market and develop plans such that their country gets a softer blow, but budget deficits and debt payments, over the distorted export-import system has made everything unpredictable.
  • As the World Bank official suggested, the world needs to come together to fight against the repercussions of the coronavirus; otherwise, this will only lead to a loop of downfall and economic meltdown.

Also read: Gig Economy: Sharp Decline in Income in Post-Lockdown India

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May Have to Forgive Poor Countries’ Debts: World Bank
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David Malpass says that investment funds and private banks can do more to support the struggling countries during the coronavirus pandemic.
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THE POLICY TIMES
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