A participant stands near a logo of World Bank at the International Monetary Fund – World Bank Annual Meeting 2018 in Nusa Dua, Bali, Indonesia, October 12, 2018. REUTERS/Johannes P. Christo
The World Bank is seeing “a huge willingness” on the part of official bilateral creditors to suspend debt payments by the world’s poorest countries so they can focus on fighting the coronavirus pandemic, a top Bank official said on Monday.
World Bank Managing Director Axel van Trotsenburg said the Group of 20 major economies and the Group of Seven (G7) had been largely supportive of a call by the World Bank and International Monetary Fund for a temporary halt in debt payments.
“Everybody understands that we need to help the poorest countries. There is a huge willingness – as in nobody is questioning that, absolutely nobody,” he told Reuters in an interview. “I think we are in a good place to move forward.”
Finance officials from the G7 and G20 countries are due to discuss the debt relief issue this week. Three sources familiar with the process said details were still being finalized. Still, they expected the G20 countries to back a suspension of debt payments at least until the end of the year.
World Bank President David Malpass said last week he expected a “broad endorsement” of the proposal by the 25-member joint Development Committee of the World Bank and IMF on Friday.
The World Bank and the IMF have begun disbursing emergency aid to countries struggling to contain the virus and mitigate its economic impact. They first issued their call for debt relief on March 25. China – a major creditor – and other G20 nations have not formally endorsed the proposal.
The IMF announced on Monday the first round of debt relief grants to 25 of its poorest member countries, including Afghanistan, Mali, Haiti, and Yemen.
The funds will cover those countries’ debt service payments to the Fund for the next six months. Yet, the IMF is pushing donor countries to more than double the $500 million available in its Catastrophe Containment and Relief Trust so it can extend the debt relief for a full two years.
The IMF-World Bank push for broader bilateral debt relief won significant backing over the past week, including from Pope Francis and the Institute of International Finance (IIF), which represents over 450 global banks, hedge funds, and sovereign wealth funds.
The two institutions are urging China and other big creditors to suspend debt payments from May 1 for International Development Association (IDA) countries that are home to a quarter of the world’s population and two-thirds of the world’s population living in extreme poverty. With a combined gross domestic product of around $2 trillion, those countries face official bilateral debt service obligations of $14 billion through the end of 2020, the World Bank estimates.
The World Bank has already approved $2.1 billion in emergency funding for 32 countries to respond to the COVID-19 crisis, with decisions on 40 more expected this month.
Van Trotsenburg said it was crucial that commercial creditors also provide debt relief for the poorest countries, which have also seen massive outflows of capital and a sharp drop-off in remittances by citizens living overseas.
“This is a global problem affecting everybody. Unless everybody acts, it will not add up,” van Trotsenburg said.
“That means every institution has an obligation to see what can it mobilize to the best of its ability, and to be fast.”
IIF President Tim Adams said official bilateral debt relief could be provided relatively quickly but that it would take longer to provide commercial debt relief given the lack of details and oversight about who exactly holds all the debt.
Van Trotsenburg said it was also important to ensure that unsustainable debt levels do not impede the poorest countries’ movement toward more sustainable development when asked about the need for a broader round of debt restructuring.
Adams said that discussion was premature, with circumstances and needs varying widely from country to country. But he said the crisis highlighted the need for greater transparency about lending to poor countries by China and others.