The World Bank warns that the poorest countries, saddled with debt and still vulnerable to the virus, are at risk of being left behind in the COVID-19 recovery.
World Bank Group President David Malpass told Yahoo Finance Tuesday that the more impoverished nations lack the luxury of easily financing large fiscal packages to counteract the economic impacts of the virus.
Even if a country wanted to issue sovereign debt to pay for COVID relief measures, Malpass said advanced nations — like the U.S. — are already taking a lot of space in the market for government bonds.
“You’ve got this double whammy,” Malpass said. “[Poorer countries] are paying a very rich interest rate to the advanced economies at a time when the advanced economies themselves are borrowing heavily in global markets.”
The World Bank has bucketed 74 countries into its International Development Association (IDA). Those countries are able to access IDA resources to not only finance poverty-reducing projects — but coordinate debt relief.
'Needs are really big'
The World Bank estimates that just this year, about $35 billion in bilateral and private debt-service payments will become due on both public and private guaranteed debt of those IDA countries. Malpass said the World Bank’s support is “just not enough to make up for all the money that’s coming out of them" as they pay their creditors.
One strategy: locking in lower rates as central banks look to raise interest rates. Higher borrowing costs could burden those lower income countries with higher debt payments, which is why Malpass says the World Bank is trying to help countries lengthen the terms of their borrowings to “lock” in lower rates.
“They don’t have access to government bond markets that are robust, so this is going to cause lasting challenges for the poor,” Malpass said.
In lower income countries, an estimated 4% of people are vaccinated. An inability to improve vaccine distribution and take up in those countries may further strand those countries through the recovery.
In the World Bank’s updated Global Economic Prospects report released this month, worldwide GDP is forecast to decelerate, from 5.5% in 2021 to 4.1% in 2022 and 3.2% in 2023.
Advanced economies are expected to fully recover to pre-pandemic trends of growth by 2023, emerging market and developing economies are forecast to remain 4% below pre-pandemic trend.
“The needs are really big,” Malpass said.
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