More countries will soon face serious debt problems and likely defaults this year if swift action is not taken, World Bank President David Malpass said on Tuesday, calling for debt restructuring and a focus on inequality and investment in ” post-COVID economy “.
Why it matters: Malpass is the latest to issue a severe warning about the state of the global economy, asking creditors, such as China and the Paris Club rich group of countries, to share the burden.
Where is it: Malpass, a former Treasury Department employee of President Reagan and Bear Sterns economist appointed by President Trump, called current debt levels in many countries “unsustainable” and said that an increasing number are currently on “red alert” for defaults.
- “Given the sharp drop in short and long-term interest rates, we need to find ways to adjust the debt burden process so that the debt burden on people in the poorest countries can be reduced dramatically.”
What we’re hearing: In addition to the risk of rising defaults and rising poverty in developing economies, the World Bank’s goal of increasing average income in countries “is not being met in the current environment,” said Malpass.
- This is “partly because the stimulus mechanisms that exist are working to focus wealth rather than adding wealth from the bottom up,” Malpass told Axios during a question and answer session with reporters.
- “One thing I think is important is that we recognize that creative destruction is important, that is, small businesses that fail due to the severity of the recession. But even more important is the creation of new small businesses, innovation.”
He continued: “And that means that countries are really allowing this process to happen, and not simply working through their large structures to provide finance to large companies.”
A deeper level: “The risk is that it can take years for people at the bottom of the income scale to see sustained improvement in their circumstances.”