World Bank urges debt reduction for poor nations

Malpass told the Reuters Next conference on Wednesday that interest rate reductions could play a big role in some of the poor-country debt restructurings being done under a new G20 framework, noting that some developing countries were paying very high interest rates of 6% to 7% on official bilateral debt.

Malpass expressed frustration about the lack of private sector support for the G20's Debt Service Suspension Initiative (DSSI), which allows the poorest countries to defer official bilateral payments through the end of June.

He said he hoped the debt moratorium could be extended but said he could not prejudge this decision.

"I urge the private sector to take a look country by country at the overindebtedness and look for ways to share the burden with the official bilateral creditors that process the G20 was able to launch last year,'" said Malpass, a former chief economist for Bear Stearns and former senior U.S. Treasury official.

Malpass said the G20, now under Italy's leadership, had made good progress by adopting a common framework for debt treatments that effectively bound China, the world's largest official bilateral creditor, into the Paris Club of official bilateral creditors, but private sector participation was critical.

"It can only work if the private sector begins to come up with techniques for participation," he said, adding that the World Bank was pushing to use its own funding to help countries hire lawyers and buy back debt at a deep discount.

The World Bank was pushing the G7 advanced economies, the G20 and the incoming administration of U.S. President-elect Joe Biden to exert new leadership on addressing too-high debt levels, and particularly on the commercial side of the issue, he said.

A major debt reduction initiative lowered debt burdens a decade ago, but since then lending had increased sharply by both China and through private sector bond markets.

Malpass said he expected to see some advances in individual countries, including potentially Chad, which is working with the World Bank and the International Monetary Fund to resolve its official and private sector debt problems.

Video Transcript

DAVID MALPASS: The common framework that the G20 agreed to at the end of 2020 is important because it gives-- it expresses the view that for some countries in deep debt distress, they'll need to be debt relieved. And the parameters of that are still being worked on.

We work very closely with the IMF. And so one issue that we're able to move forward on now is the debt reduction facility that the World Bank has used in the past. It's an important facility because it can help the countries, the poorest countries, with both the financing and with a process to actually get that reduction from their creditors. And that can be in the form of even the World Bank helping the country buy back at a deep discount some of the debt that's left over from commercial creditors.

Looking at it from the standpoint of the private sector, they say a contract's a contract. But I guess I would push back and say, throughout history, there have been occasions where there needs to be deep debt reduction. And this clearly is one of those occasions.

So I urge the private sector to take a look country by country at the overindebtedness and look for ways to share the burden with the official bilateral creditors. That process the G20 was able to launch last year, and I think it needs to go further, the common framework. And we're working on that. But then it can only work if the private sector begins to come up with techniques for participation.

As far as the Biden administration, I'm looking very much forward to working with them. You know, the World Bank has worked with both Republican and Democratic administrations over the decades. And so we look for the close working relationship with our shareholders. The US is the biggest shareholder in the World Bank. So we work very closely with all of our members, and that includes on climate.