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World Bank Warns of Ignoring Debts in the Private Sector, Poorer Countries at Greatest Risk

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Money - Sputnik International, 1920, 15.02.2022
The World Bank has released a report warning that the number of countries which are in or at risk of debt distress is now capable of causing a global chain reaction of economic catastrophes.
The World Bank is worried about developing countries that are at financial risk due to rising inflation, interest rates, and debt distress. This could cause countries that are already struggling economically further financial ruin, loss of market access, higher borrowing costs, and a hit to growth and investment opportunities.
The World Bank emphasized concerns about Chinese lending as the superpower has lent a total of $843bn over an 18-year period for a total of 13,427 infrastructure projects. Twice as much money as the U.S. was willing to lend.
In their latest report, the World Bank also highlighted debt owed by private businesses, with 46% of both small and medium businesses predicted to fall further behind within 6 months.
In India, South Africa, the Philippines and Kenya, more than 65% of small and medium sized companies are also in debt.
Chief economist Carmen Reinhart says forbearance and lax accounting standards in light of the COVID-19 pandemic could be what is concealing the non-performing loan (NPL) issue, despite the fact that monetary aid was the very thing keeping countries afloat during the pandemic.
Both Reinhart and the World Bank’s report have suggested that the lack of transparency surrounding private sector debt is the culprit for this potential economic downfall. “What gets you, in the end, is not so much what you see, but what you don’t see,” said Reinhart.
The World Bank wrote in their report that “effective resolution of the banking sector must begin with an accurate understanding of the scale of the problem. The starting point is full transparency about bank exposures to troubled assets, supported by a robust regulatory and supervisory framework so that banks properly identify NPLs and provision for credit losses.”
Some rating agencies, whose responsibility it is to assess a company or government entity’s financial strength, failed to account for foreign state-owned enterprises that are capable of raising low-income and developing nations’ financial risks.
“Private debt could suddenly become public debt, as in many past crises,” wrote World Bank President David Malpass in the report.
Malpass also said on Tuesday that the interest rates hiked by central banks, as well as the tapering of bond purchases, won't be enough to control the inflation crisis currently devastating the world’s poorest.
He turns his attention to governments and central banks instead, saying that they now have a responsibility to lengthen the maturity and transparency of outstanding government debt, and slow the growth in national debt levels.
The Group of Twenty (G20) is scheduled to have a meeting in Indonesia this week, but when asked if she expects them to reach a conclusion on the debt issue, Reinhart said, “I hope that they do, but I am not optimistic.”
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