By Babajide Komolafe

The World Bank yesterday said that the ongoing debt crisis in low-income countries will worsen this year.

World Bank Group President, David Malpass, said this adding that 60 percent of low-income countries are already in debt distress.

Based on the World Bank collection of development indicators, low-income economies are countries with a gross national income (GNI) per capita of $1,045 or less, according to the. 

They include The Gambia, Mali, Uganda, Togo,  Liberia, Burundi, Ethiopia, Guinea, Somalia, Madagascar, and Chad, among others.

Speaking at  a media roundtable of the World Bank/International Monetary Fund, IMF 2022 spring meetings, Malpass noted that the debt and inflation are the two major problems facing the growth of the global economy.

 He said: “I want to say a few words on debt and inflation. These are two big problems facing global growth. Due to high debt and deficit levels, countries are under severe financial stress. 

“Sixty percent of low-income countries are already in debt distress or at high risk of it. I participated virtually in our April 13 conference on debt transparency and sustainability, and suggested steps to improve the implementation of the Common Framework.

 These included: Establishing a timeline for forming creditors’ committees; Suspension of debt service payments and penalty interest; Expanding eligibility; A simple rule so that it can be evaluated and enforced; and Engaging commercial creditors at the beginning of the process. We expect the debt crisis to continue to worsen in 2022.” 

“I want to turn now to the inflation problem, which is causing immense strain. Policies need to be adjusted to enhance supply, not just increasing demand. Markets are forward looking so it’s vital for governments and private sectors to state that supply will increase and that their policies will foster currency stability to bring down inflation and increase growth rates. 

This is especially important as global supply chains shift away from dependency.

“Central banks need to use more tools under current policies. The inequality gap has widened materially, with wealth and income concentrating in narrow segments of the global population. Interest rate hikes, if that’s the primary tool, will add to the inequality challenge that the world is facing.”

“Central banks can use more of their tools, not just interest rates. Capital is being misallocated now. One of the focal points should be using all the central bank tools so that capital is allocated in a way that helps increase supply. That will be an effective way to address inflation.”

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