World bank outlines sustainable actions for debt distressed countries

The World Bank Group President, David Malpass has outlined three principles for meaningful restructuring for debt distressed countries.

He said in a blog post titled ‘The April 2023 Global Sovereign Debt Roundtable: Time for meaningful debt restructuring’ that this will be an update on recent developments and reiterate his call for prompt action toward debt sustainability for debt distressed countries.

The World Bank Group president, listed resolving the sovereign debt, highly concessional financing, including grants and net positive resources, application of rules for transparency and for comparability of treatment, including a common discount rate as principles for meaningful debt restructuring.

“Resolving the sovereign debt impasse is vital for development and is in our collective interests since faster resolutions will enable investment and growth,” Malpass said.

He added that the World Bank is contributing fully to debt resolutions by providing highly concessional financing, including grants and net positive resources during the delays in the restructurings.

Malpass also said the World Bank will support debt restructurings with concessional and net positive resources as restructurings return countries to debt sustainability.

“There should be a more predictable process that moves faster toward sustainability of the debt. In meeting the financing needs, it will be important to apply rules for transparency and for comparability of treatment, including a common discount rate,” he said.

“In my remarks at the G20 Finance Ministers and Central Bank Governors on February 24, 2023, I outlined the core debt challenges facing many developing countries. I referred to Zambia, Ghana, and Ethiopia where the debt restructuring process has stalled or is in urgent need of acceleration.

Malpass stated that several middle-income countries are also facing a high risk of debt distress, and need a path toward meaningful debt restructuring.

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In the World Bank live event titled ‘Overcoming Debt, Generating Growth’ which held on Tuesday, Nigel Clarke, minister of finance and the public service, Jamaica said a country resisting the temptation to implement policies that are characterised by huge amount of fiscal leakage because they are targeting to the bottom half of the country where the need is greatest send signals send to investors that a country is serious.

“We are being principled in decision making and that allows for economic and economic results in Jamaica,” Jamaica’s minister of finance and the public service said.

The World Bank Group president said, “I concluded the February 25 Debt Roundtable by urging progress on each restructuring – Zambia MOU, Ghana official creditors’ committee, Ethiopia restructuring, and Sri Lanka financial assurances.

“I am glad to see some positive movement in recent weeks in Sri Lanka and Ghana, and I am calling for decisive efforts in Zambia and Ethiopia,” he said.

He said that Sri Lankan authorities have obtained financing assurances from their major creditors sufficient to satisfy the IMF’s debt sustainability analysis and unlock the IMF-supported program, which was approved on March 20 by the IMF’s Board.

He added that Sri Lanka will be able to defer bilateral and private debt service payments for two years and work in the coming months toward a debt treatment that achieves medium and long-term debt sustainability.

For Ghana, Malpass said there has been continued work toward establishing the official creditor committee(OCC) pursuant to the G20 Common Framework, adding that the OCC will bring together the Paris Club creditors as well as China and other non-Paris Club official bilateral creditors under France’s chairmanship.

“Domestic debt restructuring remains a challenge, but there has been good collaboration among the World Bank, IMF, official bilateral and private sector creditors with respect to sharing key relevant information on the macro-economic framework, debt composition and debt service payments.

He stated that Zambia’s government has taken many decisive actions that has allowed large World Bank IDA support to continue. “Now international creditors need to provide prompt debt relief to maintain the Common Framework.”

“Ethiopia’s implementation of the peace agreement creates an opportunity for the international community to support much-needed economic reforms,” Malpass said.

The World Bank Group president further revealed that another important step is a prompt agreement with the IMF which could help to unlock an agreement under the Common Framework which will put Ethiopia back on a path of debt sustainability.