Africa-Press – Cape verde. The president of the World Bank considered this Wednesday, 11th, that “there is no magic wand to end debt” and warned that it is necessary to be careful with the new instruments being developed to deal with the growth of debt.
Encontros: “There is no magic wand to end debt”, says president of the World Bank
“There is no magic wand to end debt, it doesn’t seem to me that it is possible to suddenly end countries’ debt,” said Ajay Banga at the press conference to officially launch the Annual Meetings of the International Monetary Fund (IMF) and the World Bank, taking place this week in Marrakesh.
Asked about the hypotheses on the table for a new mechanism to resolve the excessive debt that many countries face in a context of recovery from the effects of the pandemic, high interest rates, high inflation and lower economic growth, Ajay Banga highlighted that “it is necessary be very careful about the contours of a new mechanism”, which replaces the current Common Framework organized by the IMF, the World Bank and the so-called Paris Club, an informal organization of donor countries that holds a large part of the debt of the most indebted countries.
“There is no doubt that debt harms growth, whether measured in terms of local development or in terms of achieving the Sustainable Development Goals”, stressed the president of the World Bank in his first participation in the Annual Meetings, after his election in the middle of this year.
Developing countries, particularly African ones, have faced an increase in external debt not only due to the devaluation of their currencies, but also due to the increase in interest rates decided by the main central banks, namely the United States Federal Reserve, which has placed public finances are under greater pressure in relation to the ability to finance the investments necessary to develop economies.
Zambia, the first African country to enter Financial Default following the pandemic, in 2021, joined the Common Framework to restructure its debt, and is expected to sign the final agreement with creditors soon, more than two years after the start of the process that resulted in the downgrading of the rating and removal from international financial markets.
“Zambia is getting out of excessive debt, Ghana is making progress, but what we need to understand is that the financial market is completely different from what it was, with the Paris Club no longer being the biggest creditor. , there are other members and there is a lot of commercial debt that is protected by confidentiality clauses that make the process more complicated”, said the World Bank leader, stressing that “without knowing the numbers, no new framework will be able to resolve the situation”.
The four African countries that have joined or shown interest in using the Common Framework to restructure their debts – Zambia, Chad, Ethiopia and Ghana – have received more than $12 billion in the last three years, split halfway between grants and concessional financing, that is, with interest rates close to zero, added Ajay Banga, when asked about the type of support that the World Bank can give to these countries.
At the press conference, the official also recalled that the IMF and the World Bank are leading the meetings of the Round Table on Sovereign Debt, an initiative that aims to bring together bilateral and institutional creditors, in addition to commercial creditors, who have shown resistance to restructuring of countries’ debt, as they imply losses for investors.
The external debt of Zambia, a country that has a Gross Domestic Product (GDP) of 22 billion dollars (20.1 billion euros), is estimated at 17.3 billion dollars (15.8 billion euros).
Zambia, one of the world’s main copper producers, defaulted on its external debt at the start of the Covid-19 pandemic, being the first African country to fail to make debt payments and thus go into ‘default’, which earned it a downward review by financial rating agencies, resulting in greater difficulty in obtaining financing.
The country resorted to the Common Framework mechanism created by the G20 to restructure the debt of the world’s poorest countries, in the hope of an agreement between its creditors, but so far without a final agreement.
The Common Framework for Debt Treatment was the mechanism agreed following the Debt Service Suspension Initiative (DSSI), an agreement launched by the main official creditors to defer debt service payments and thus provide room for maneuver for countries most vulnerable are able to deal with the increase in expenses caused by the covid-19 pandemic.
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