According to the '2021 International Debt Statistics (IDS)' report, the total external debt of Debt Service Suspension Initiative- (DSSI-) eligible countries climbed 9.5% year-on-year to a record $744-billion in 2019, highlighting an urgent need for creditors and borrowers alike to collaborate to stave off the growing risk of sovereign-debt crises triggered by the Covid-19 pandemic, reports the World Bank.
The pace of debt accumulation for these countries was nearly twice the rate of other low- and middle-income countries in 2019.
Responding to a call from the World Bank and the International Monetary Fund, the G20 endorsed the DSSI in April to help up to 73 of the poorest countries manage the impact of the Covid-19 pandemic.
In response to an urgent need for greater debt transparency, this year’s report from the World Bank provides more detailed and more disaggregated data on external debt than ever before in its nearly 70-year history – including breakdowns of what each borrowing country owes to official and private creditors in each creditor country, and the expected month-by-month debt-service payments owed to them through 2021.
Before the onset of the Covid-19 pandemic, rising public debt levels were already a cause for concern, particularly in many of the world’s poorest countries, as discussed in the World Bank’s 'Four Waves of Debt' report published in December 2019.
The debt stock of DSSI-eligible countries to official bilateral creditors, comprising mainly G20 countries, reached $178-billion in 2019 and accounted for 17% of long-term net debt flows to low- and middle-income countries.
The report finds that, within the G20 creditor group, there have been some important shifts characterised by a marked increase in lending by G20 member countries that are themselves middle-income countries.
For example, China, by far the largest creditor, has seen its share of the combined debt owed to G20 countries rise from 45% in 2013 to 63% at end-2019. Over the same period, the share for Japan, the second largest G20 creditor, has remained broadly the same at 15%.
The 2021 IDS data release also reflects progress made to increase coverage of complex debt instruments, given their rising prominence in the debt profiles of developing countries.
The central bank and currency swap arrangements that represent loans from other central banks also occur in low- and middle-income countries. The World Bank emphasised that it was working to ensure that these debt instruments were captured in the IDS dataset.
It noted that increased debt transparency would help many low- and middle-income countries assess and manage their external debt through the current crisis and work with policymakers toward sustainable debt levels and terms.
“Achieving long-term debt sustainability will depend on a large-scale shift in the world’s approach to debt and investment transparency.
"The time has come for a much more comprehensive approach to tackling the debt crisis facing the people in the poorest countries − one that involves debt-service suspension, as well as broader efforts such as debt-stock reduction and swifter debt-restructuring, grounded in greater debt transparency,” said World Bank Group president David Malpass.
Greater debt transparency is critical to productive investment and debt sustainability, the World Bank emphasised.
The organisation has called for full transparency of the terms of the existing and new debt and debt-like commitments of the governments of the poorest countries.
It has urged creditors and debtors alike to embrace this transparency – to facilitate analysis that it said would enable countries to identify sovereign-debt levels that are consistent with growth and poverty reduction.
“Debt is what enables governments to have extra resources they need to invest in health systems, education, or infrastructure. If you have a debt problem, all those ambitions suffer. That’s why it’s important to get the debt onto sustainable ground as quickly as possible. We can’t afford another lost decade,” commented World Bank chief economist Carmen Reinhart.