Following the devastating effects of the COVID-19 pandemic, the President of the World Bank, David Malpass, recently called for immediate debt relief for the world’s poorest countries. The intervention, according to him, will enable the governments of impoverished countries make sustainable recovery from the pandemic, which has disrupted world economy. Malpass deserves commendation for the call to rescue the economies of poor countries. This is the second time since the outbreak of the pandemic that he will urge members of the developed economies (G20), to allow the poorest countries suspend all repayments of official bilateral credit due to the ravaging pandemic.
In a newsletter released by the bank, Malpass acknowledged that the world could no longer afford to “kick the debt can down the road,” and stressed that “developing countries need relief now.” Malpass, who believed that the debt relief has become timely, argued that the initiative would provide, among other things, deep debt-burden reduction, fuller creditor participation, a level playing field to resolve debt crises and debt transparency that will protect the people. His submission is a fair assessment of the economic challenges confronting the poorest nations following the advent of the ravaging global pandemic.
We agree with him that as many creditors in G-20 countries are taking payments, the current playing field will favour creditors over poorer borrowers. The situation will make the people of the debtor countries to remain in poverty. In fact, the governments of the G20 nations should create incentives for all their public bilateral creditors and encourage strong private creditors under their jurisdiction, to participate fully in the debt relief efforts.
The time has come for the G20 creditors to grant debt relief for distressed borrowers, through lower interest rates and actual write-downs or cancellation. We believe that debt restructuring will reduce the amount owed by developing countries if done transparently.
At the outbreak of the pandemic, the International Monetary Fund (IMF) launched a $1billion fund to enable poor countries deal with the virus under what it called Catastrophe Containment Relief Trust (CCRT). The United Kingdom, Japan and China were among countries that donated to the fund. Some G20 nations made pledges for a rapid debt service relief to poorest and most vulnerable countries. Although the global bank’s intervention is commendable, poverty-stricken countries must evolve some forward-looking measures to break out of the sovereign debt crisis. It is disturbing that the negative effects of the economic crisis are already biting hard in some countries, including Nigeria. For instance, Chinese credit accounts for about 80 per cent of all Nigeria’s current bilateral loans, according to data from the Debt Management Office (DMO).
China provides loans to build railways, power plants and airport, among other infrastructure. The situation has raised concerns about mortgaging Nigeria’s sovereignty. However, the government has allayed such fears about Chinese loans. While the World Bank and IMF are reportedly restructuring existing projects in over 70 poorest countries, Nigeria should take concrete steps to ensure transparent and sustainable national policies that will support the poor.
Currently, Nigeria and other vulnerable economies are already grappling with extreme poverty and growth outlook is bleak. The World Bank has projected that up to 30 million more people in Nigeria will fall into extreme poverty trap in the next decade unless the government comes up with policy reforms that will engender robust productivity and inclusive growth. We believe that this is a wake-up call on the government to create new jobs for the rapidly increasing labour force.
The case for urgent debt relief for poorest countries is commendable. Interestingly, leaders of the G20 countries have approved the plan to extend its Debt Service Suspension Initiative (DSSI) to mid-2021. They also supported a uniform approach to resolve their debt burdens. However, debt-ridden nations should bear in mind that the debt relief is only a moratorium that only postpones the payment date. It is neither debt forgiveness nor outright cancellation of debt of the poorest countries. Therefore, the debt relief window should serve as an opportunity for these countries to implement policy reforms that will stimulate economic growth.