Connect with us

Hi, what are you looking for?

World

Massive debt wave could crash on developing countries, World Bank warns

-

A wave of debt in emerging and developing nations has grown faster and larger than in any period of the last five decades and could end with another crisis, the World Bank warned Thursday.

And if the wave breaks, it could be more damaging since it would engulf private companies in addition to governments, at a time when economic growth is sluggish, according to a new report that covers four debt surges from 1970-2018.

"The size, speed and breadth of the latest debt wave should concern us all," World Bank President David Malpass said in a statement.

"Clearly, it's time for course corrections," he added.

The World Bank and International Monetary Fund have been sounding the warning about growing global debt for years, but the latest report is even more stark and turned up the volume on its calls for governments to take steps to prevent a debt crisis.

IMF chief Kristalina Georgieva on Thursday said developing nations in Africa especially need to strike the right balance between financing development and a manageable debt level.

- Surging to $188 trillion -

The IMF reported that total global debt rose to $188 trillion at the end of 2018, equivalent to nearly 230 percent of the world's economy.

The World Bank report highlights the "striking" debt surge in emerging and developing economies, which is the "largest, fastest and most broad-based in EMDEs in the past 50 years."

IMF Managing Director Kristalina Georgieva said African nations must balance the need to finance dev...
IMF Managing Director Kristalina Georgieva said African nations must balance the need to finance development with their ability to pay off debts
MARK WILSON, GETTY/AFP/File

After declining during the 2008 global financial crisis, amid very low borrowing costs in just eight years since 2010, debt in these countries climbed to an all-time high of roughly 170 percent of GDP or about $55 trillion.

Much of the growth was incurred by China (equivalent to more than $20 trillion), but Beijing also has become a large lender for low-income countries.

The report warns that the current debt wave "could follow the historical pattern and culminate in financial crises in these economies," especially if interest rates spike or if there is a sudden global shock.

Better debt management, improved tax collection, flexible exchange rates and tighter fiscal rules to manage spending could help avert a crisis and soften the blow if one occurs, the World Bank said.

"Towering though it may seem, the latest global wave of debt can be managed," Malpass said.

"But leaders need to recognize the danger and move countries into safer territory in terms of the quality and quantity of investment and debt -- sooner rather than later."

His IMF counterpart, Georgieva, in a blog post Thursday repeated her concern about the massive increase in commercial borrowing in Africa -- accounting for 70 percent of the ballooning of debt.

She urged governments in the region to find a "balanced approach" to managing debt and development.

"Africa is seeking to find the right balance between financing development and safeguarding debt sustainability, between investing in people and upgrading infrastructure, between long-term development objectives and pressing immediate needs," she said.

A wave of debt in emerging and developing nations has grown faster and larger than in any period of the last five decades and could end with another crisis, the World Bank warned Thursday.

And if the wave breaks, it could be more damaging since it would engulf private companies in addition to governments, at a time when economic growth is sluggish, according to a new report that covers four debt surges from 1970-2018.

“The size, speed and breadth of the latest debt wave should concern us all,” World Bank President David Malpass said in a statement.

“Clearly, it’s time for course corrections,” he added.

The World Bank and International Monetary Fund have been sounding the warning about growing global debt for years, but the latest report is even more stark and turned up the volume on its calls for governments to take steps to prevent a debt crisis.

IMF chief Kristalina Georgieva on Thursday said developing nations in Africa especially need to strike the right balance between financing development and a manageable debt level.

– Surging to $188 trillion –

The IMF reported that total global debt rose to $188 trillion at the end of 2018, equivalent to nearly 230 percent of the world’s economy.

The World Bank report highlights the “striking” debt surge in emerging and developing economies, which is the “largest, fastest and most broad-based in EMDEs in the past 50 years.”

IMF Managing Director Kristalina Georgieva said African nations must balance the need to finance dev...

IMF Managing Director Kristalina Georgieva said African nations must balance the need to finance development with their ability to pay off debts
MARK WILSON, GETTY/AFP/File

After declining during the 2008 global financial crisis, amid very low borrowing costs in just eight years since 2010, debt in these countries climbed to an all-time high of roughly 170 percent of GDP or about $55 trillion.

Much of the growth was incurred by China (equivalent to more than $20 trillion), but Beijing also has become a large lender for low-income countries.

The report warns that the current debt wave “could follow the historical pattern and culminate in financial crises in these economies,” especially if interest rates spike or if there is a sudden global shock.

Better debt management, improved tax collection, flexible exchange rates and tighter fiscal rules to manage spending could help avert a crisis and soften the blow if one occurs, the World Bank said.

“Towering though it may seem, the latest global wave of debt can be managed,” Malpass said.

“But leaders need to recognize the danger and move countries into safer territory in terms of the quality and quantity of investment and debt — sooner rather than later.”

His IMF counterpart, Georgieva, in a blog post Thursday repeated her concern about the massive increase in commercial borrowing in Africa — accounting for 70 percent of the ballooning of debt.

She urged governments in the region to find a “balanced approach” to managing debt and development.

“Africa is seeking to find the right balance between financing development and safeguarding debt sustainability, between investing in people and upgrading infrastructure, between long-term development objectives and pressing immediate needs,” she said.

AFP
Written By

With 2,400 staff representing 100 different nationalities, AFP covers the world as a leading global news agency. AFP provides fast, comprehensive and verified coverage of the issues affecting our daily lives.

You may also like:

Business

US President Joe Biden delivers the State of the Union address - Copyright AFP Kazuhiro NOGIPresident Joe Biden called on US lawmakers Tuesday to...

Business

An activist with India's opposition Congress party shouts slogans in Kolkata as he burns an effigy of Prime Minister Narendra Modi and tycoon Gautam...

Tech & Science

The electric molecular motor is based on a [3]catenane whose components ― a loop interlocked with two identical rings ― are redox active, that...

Business

The process of lowering inflation has a long way to go, said Federal Reserve Chair Jerome Powell on Tuesday - Copyright AFP Karim SAHIBUS...