WASHINGTON, Dec 1 (Reuters) – The world’s poorest countries now owe official bilateral creditors $62 billion in annual debt service, a 35% increase from a year ago, the World Bank President David Malpass, warning that the increased burden is increasing the risk of default.
Malpass told the Reuters NEXT conference in New York that two-thirds of that debt burden is now due to China, providing some details on the development lender’s annual debt statistics report due next week.
“I worry about a messy default process where there is no system to really settle” the debts of the poorest countries, Malpass said.
Malpass also said he was concerned about a buildup of debt in advanced economies such as the United States, as it diverts more capital from developing countries.
“And so as interest rates go up, debt service goes up for advanced economies, and that requires a lot of capital from the world.”
DATING IN CHINA
Malpass said he would join a meeting in China next week with the heads of other international institutions and Chinese authorities to discuss the country’s approach to debt relief for the poorest countries, COVID-19 policies, real estate turmoil and other economic issues.
“China is one of the major creditors, so…it is very important that China engages on this issue and thinks about the direction it envisions for the world and be responsive to work with what must be done to ensure the sustainability of countries.”
IMF chief Kristalina Georgieva will also attend the meeting, which will focus heavily on debt treatment. Participants will include officials from the China Development Bank and the China Export-Import Bank, two of the country’s major bilateral lenders.
Georgieva separately told Reuters Next that changes to the G20 common framework on debt restructuring were needed to speed up debt treatment, freeze debt service payments once a country has requested debt help and open the process to middle-income countries like Sri Lanka.
“We are concerned that there is a risk of erosion of confidence in debt settlement at a time when the level of debt is very high,” Georgieva said.
“We don’t see at this stage … a risk of a systemic debt crisis,” she said, adding that over-indebted countries were not big enough to trigger a crisis that would threaten financial stability.
Reporting by David Lawder; Additional reporting by Andrea Shalal; Editing by Andrea Ricci
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