World Bank President David Malpass said on Tuesday that Chad and many other countries are in deep debt distress and more were expected to join the ranks this year, considering the severity of the global recession triggered by the COVID-19 pandemic.
Malpass Dsaid the African oil producer could need a deep reduction in its current debt, saying creditors would need to work with the countries to find a viable solution to its debt overhang.
“For some countries, it’s a red alert,” Malpass told reporters during a teleconference. “We need to find ways to adjust the debt burden, so that the burden of debt on people in poorer countries can be reduced dramatically.”
According to the World Bank’s Global Economic Prospects (GEP) said there would be a subdued recovery in 2021 of 4% growth.
The World Bank said there was “material risk” that setbacks in containing the pandemic could lead to a much weaker rebound as countries are faced with growing financial difficulties.
Several countries have already defaulted on their debts. More are at risk of debt distress, according to the GEP.
Malpass said: “Already at record levels before the pandemic, both domestic and external debt burdens have become much heavier due to the devastating contraction in incomes across emerging markets and developing economies.”
Emerging markets and developing economies face debt crises. “The global community needs to act rapidly and forcefully to make sure the latest wave of debt does not end with debt crises in emerging market and developing economies, as has been the case previously,” the GEP said. “The pandemic has exacerbated existing debt-related risks and vulnerabilities.”
The World Bank admits that the response to the pandemic has plunged millions into poverty. “As with previous economic crises, the pandemic is expected to leave long-lasting adverse effects on global economic activity and per capita incomes. It is likely to steepen the slowdown in the growth of global potential output – the level of output the global economy can sustain at full employment and capacity utilisation – that had earlier been projected for the decade just begun. If history is any guide, unless there are substantial and effective reforms, the global economy is heading for a decade of disappointing growth outcomes.”