World Bank Report Shows “Massive Gaps” in Poor Countries’ Debt Tracking Systems
WASHINGTON, Nov. 10 (Reuters) – The existing systems for tracking the sovereign debt of the poorest countries are inadequate and mask hidden debts, and they are likely to be much higher than currently estimated record levels, the chief economist of the World Bank, Carmen Reinhart.
The Multilateral Development Bank on Wednesday released the first comprehensive assessment of global and national debt surveillance systems, saying it had found “massive gaps” in the ability to track how much each country owes – and to whom.
The current patchwork of databases – with different standards and definitions – meant that debt estimates could account for up to 30% of a country’s gross domestic product, according to the report, noting that 40% of countries with low income had not published any data on their sovereign debt for more than two years.
The World Bank, long critical of the lending practices of China, the world’s largest creditor, said last month that the debt burden of low-income countries rose 12% to a record high $ 860 billion here in 2020, and called for global efforts to help low- and middle-income countries achieve more sustainable debt levels.
Reinhart told Reuters the actual number could be “significantly higher” and said the new study underscored the need for reforms to ensure better debt statistics, coordinated data collection and integrated debt management systems. debt.
She said the opaque nature of many debt contracts and the complete failure of the private sector to participate in a G20 debt relief initiative cloud the prospects for countries in timely debt restructuring efforts. low and middle income.
The bank estimates that 12% of low-income countries are already over-indebted and 44% are at high risk of doing so.
LARGEST SHARE OF GLOBAL GDP
The potential default of a poor country like Chad – the first country to seek restructuring within the common framework of the G20 – would not affect the global financial system, but even middle-income countries face growing risks. which could ultimately affect the outlook for global growth, she said. .
Developing economies, including China, now account for 60% of global GDP, down from less than 40% during the last major debt crisis of the 1980s, meaning a new debt crisis could have an impact. significant impact on the global economy, she said. .
“Collectively, you have to care. This is a much more substantial part of global business, ”she said.
Reinhart said his previous research on loans from China showed that official debt statistics captured about half of actual debt, and that fluctuating commodity prices and the continued impact of the COVID-19 pandemic could push debt levels further.
Any interest rate hikes on the horizon in richer economies could exacerbate challenges for developing countries, she said, as they could divert investment and increase the already high cost of doing business. borrowing.
Debt service payments, linked to exports, have doubled to more than 20% in 2020, she said, reflecting the growing toll that increased borrowing is taking on poorer countries.
She said that 54% of the more than 70 countries surveyed by the World Bank did not have consolidated fiscal accounts that provided a “cohesive picture” of central bank and state-owned enterprise debt, another factor obscuring results. true debt levels.
There was also limited data on the increasingly popular asset-backed loans, which use future income as collateral, and the central bank buybacks and currency swaps that low-income countries used to support loans. external loans. (Reporting by Andrea Shalal; Editing by Simon Cameron-Moore)