Need to Take a Longer-term Perspective on Debt Sustainability, Says World Bank President

There is need to take a longer-term perspective on debt sustainability, World Bank President David Malpass said on Friday as he sought to consider debt stock reduction to address looming debt crisis. I think we need to take a longer-term perspective on debt sustainability, Malpass said in the intervention of Development Committee meeting of the World Bank and the International Monetary Fund. At his request early this year, the G-20 has endorsed a temporary suspension of debt service, which has resulted in 43 of the world's poorest countries benefitting from an estimated USD5 billion in debt service suspension from official bilateral creditors.

In addition, the World Bank had announced a 15-month target of USD 160 billion in surge financing. Much of it is for the poorest countries and will take the form of grants or low-rate, long-maturity loans. "The Debt Service Suspension Initiative (DSSI) has helped us make significant progress on debt transparency, which is critical for increasing high-quality investment," he said.

Looking beyond the DSSI, one must consider debt stock reduction, he said. Otherwise there's no light at the end of the debt tunnel for the people in the debtor countries, he added. The crisis-related lending operations supported by our institutions have put heavy emphasis on short-term financial flows. Those address liquidity needs but not the solvency crisis facing the world's poor, Malpass said.

For example, reprofiling debt payments addresses liquidity but not solvency. There is a need to strengthen the IMF/WB Debt Sustainability Analyses to use a longer window, he said. This concern about the debt overhang also applies to the G-20 discussion of a common framework on debt treatment, he said.

It's important that the framework not just kick the can. Given the urgency of the debt crisis, it's urgent to make rapid progress toward debt stock reduction, because debt burdens are crushing recovery and reversing decades of progress on poverty reduction, Malpass said. Malpass also welcomed the public call of several European shareholders, including Ministers of Denmark, the Netherlands, France, Germany, Spain and Sweden for the World Bank and the IMF to deliver a coherent approach to debt restructuring that helps address the looming debt crisis.

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