BY BAMIDELE FAMOOFO
Global debt levels skyrocketed as a result of the Covid pandemic, reaching its highest level in 50 years.
World’s total debt according to the World Bank stood at a total 263% of Gross Domestic Product.
The Bank which made the disclosures in its latest Global Economic Prospects report said the increase spanned government as well as private debt.
“It manifested in external as well as domestic debt, and in advanced economies and EMDEs alike.
“This surge in debt, along with the COVID-induced economic global recession, has increased debt vulnerabilities in Emerging and Developing Economies (EMDEs) especially in low-income economies. More than half of the poorest countries are already in debt distress or at high risk of it,” the Bank disclosed.
The World Bank noted that debt relief and debt-restructuring initiatives will require greater debt transparency-“because the current lack of clarity about debt commitments can impair debt sustainability analysis and delay relief until the country’s full debt is known.”
The G20 Common Framework process is an agreement between G20 and Paris Club countries to work together on debt treatments for many low-income economies. The structure of the framework, which continues to evolve, could be improved to provide more timely relief, the report says. The experience of past coordinated debt relief initiatives suggests that debt stock reductions may reduce the output losses associated with debt distress more than debt service relief.
The latest Global Economic Prospects report from the Bank predicts that global growth will decelerate from 5.5% in 2021 to 4.1% in 2022 and 3.2% in 2023 as pent-up demand dissipates and as fiscal and monetary support is unwound across the world. The rapid spread of the Omicron variant, moreover, indicates that the pandemic will likely continue to disrupt economic activity in the near term. Among EMDEs, growth is expected to drop from 6.3 percent in 2021 to 4.6 percent in 2022 and 4.4 percent in 2023.
The report warned that the outlook poses particular dangers for EMDEs. “First, the notable deceleration in major economies—including the United States and China—will reduce external demand for goods and services for many EMDEs. Moreover, the slowdown is occurring just when governments in many of these economies are running out of policy space to respond, if necessary, to the emerging challenges: new COVID-19 outbreaks, persistent supply-chain bottlenecks and inflationary pressures, and elevated financial vulnerabilities in large swaths of the world. The combination of these threats could increase the risk of a hard landing in these economies.”
“Advanced economies and emerging market and developing economies are on two different flight paths,” said Ayhan Kose, Director of the Prospects Group at the World Bank. “While slowing, advanced economies are still flying high, and their combined output is expected to go back to the pre-pandemic trend by 2023. Emerging and developing economies, however, are flying low—and they do not have much gas left to use in terms of policy space if they encounter headwinds. That’s why we’re worried about a hard landing.”
