Pre-COVID-19 debt crisis has aggravated in poorest countries after pandemic: World Bank

A debt crisis that had begun to unfold in the world’s developing countries, has been aggravated by the novel coronavirus disease (COVID-19) pandemic, the World Bank said October 13, 2020.

The external debt owed by low- and middle-income countries is mostly long-term and a major portion of this is owed by governments and other public sector entities, a new report released by the organisation, said.

The share of long-term debt owed by public and publicly guaranteed borrowers increased to 49 per cent in poorer countries. The share of short-term debt fell to 16 per cent in 2019.

COVID-19 may add to the debt crisis that was unfolding in the poorest countries before the pandemic struck, according to the World Bank.

The pandemic had created an emergency situation that had diverted all available resources. Public revenues at all government levels had seen a sharp drop, according to a recent statement by The Lancet COVID-19 Commission.

The situation may worsen further, especially for developing countries as they would have to fulfil the rising social needs and may need more support.

This, even as G20 creditor countries are not keen to provide COVID-19 debt relief to 73 Least Developed Countries (LDCs) beyond June 2021, David Malpass, president of the World Bank said.

G20 creditors had allowed the 73 LDCs to suspend payments on official bilateral debt until the end of this year under the Debt Service Suspension Initiative (DSSI) in April.

The debt burden of the LDCs climbed to a record $744 billion in 2019, according to the International Debt Statistics 2021 released by the World Bank October 13. 

Official bilateral creditors, comprising mostly G-20 countries, were owed $178 billion of the debt stock of DSSI-eligible countries in 2019. Sixty-three per cent of this was owed to China, the report noted. 

This accounted for 27 per cent of the long-term debt stock of low-income countries. The pace of debt accumulation for these countries was nearly twice the rate of other low- and middle-income countries in 2019, the report said.

Total external debt of the 120 low- and middle-income countries for which data was presented in the International Debt Statistics 2021 rose by 5.4 per cent in 2019 to $8.1 trillion.  

Sub-Saharan African countries recorded the fastest accumulation of external debt stock in 2019, with an average of 9.4 per cent, the report showed. The region’s debt stock went up to over $625 billion in 2019, from around $571 billion in 2018.

Sub-Saharan Africa’s debt worsened further due to a significant rise in the debt stock of its major economies, including Nigeria and South Africa and other borrowers across the region, according to   World Bank data.

South Africa recorded an 8.7 increase in debt burden between 2018 and 2019. The country’s debt burden increased to $188.10 billion in 2019, from $173 billion in 2018. 

Egypt was the largest borrower in the Middle East and North Africa region, where the debt stock rose on by an average 5.3 per cent.

South Asia registered a 7.6 per cent rise in debt stock. India was responsible for a six per cent rise in debt stocks in the region after Bangladesh (9.5 per cent) and Pakistan (7.8 per cent).

China is the largest creditor so far, with its share of the combined debt owed to G-20 countries rising to 63 per cent at 2019-end, from 45 per cent in 2013.