World Bank President: Facing the COVID-19 Pandemic, Poor Countries Need to Wipe Out Debt

The COVID-19 pandemic impacted many things in the world, even triggering a debt crisis in several countries. So creditors should be prepared to provide different types of waivers, which also include debt write-offs, said World Bank President David Malpass, in an interview with German economic daily Handelsblatt.

“It is clear that some countries cannot pay their debt burden. Therefore, we must also reduce the level of debt. It could have been as a waiver or as a debt cancellation,” David Malpass said in an interview Handelsblatt released Sunday, October 4, 2020.

“It is important that the amount of debt is reduced by restructuring,” the World Bank President added. He pointed to similar steps that had been taken in previous financial crises, such as in Latin America and the so-called HIPC initiative for countries with high debt burdens in the 1990s.

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Zambia last week said it could no longer repay its debt installments and hoped that creditors would negotiate a debt restructuring early next year with debt write-offs of up to 1 billion U.S. dollars. The coronavirus outbreak hit the economy of Zambia, one of the world’s largest copper producers, due to falling demand for such raw materials on the global market.

Zambian finance minister Bwalya Ng’andu said on Friday 2 October that the country would not take out new commercial loans by 2021 and limit existing projects in a bid to reduce bloated debt.

Zambia’s mineral-rich public debt increased 4.3 percent in the first six months of 2020, reaching USD 11.97 in June. That debt will already reach about 80 percent of GDP by the end of 2019, according to the African Development Bank (AfDB).

“The government remains committed to restoring the sustainability of public debt and has embarked on a number of initiatives to achieve this goal,” Bwalya Ng’andu said when announcing the 2021 budget plan. He hopes to enter into negotiations and agree a debt restructuring agreement with creditors by April 2021.

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