- Public debt in emerging markets has surged to levels not seen in 50 years, and many developing countries have increasingly taken on debt on non-concessional terms—from private lenders and non-Paris Club members.
- As the COVID-19 pandemic wreaks havoc on the global economy, poorer countries who will be hardest hit by the virus will also face a debt crisis.
- Debt service suspension is a powerful, fast-acting measure that can bring real benefits to people in poor countries, particularly countries that don’t have the financial resources to respond to the coronavirus (COVID-19) crisis.
- With the encouragement of the WBG, IMF and others, G20 economies are allowing the world’s poorest countries to suspend repayment of official bilateral credit on May 1. This initiative will do much to safeguard the lives and livelihoods of millions of the most vulnerable people.
- The G7 has also indicated that it would suspend debt obligations of the poorest countries.
How the World Bank is Helping
- Between April 2020 and June 2021, the World Bank Group deployed a record $157 billion to help developing countries fight the pandemic’s health, economic, and social impacts. As countries around the world work to contain the spread and impact of COVID-19, we are taking broad, fast action to help to help developing countries strengthen their pandemic response and health-care systems:
- We and other Bretton Woods institutions are ramping up financial support to IDA countries to enable them to overcome the crisis. As always, we first assess the country’s overall financial picture, including the debt profile and repayment implications.
- From April 2020 through December 2021, the World Bank committed $44.4 billion in financing for countries participating in the G-20 Debt Service Suspension Initiative (DSSI)—of which $16.1 billion was in the form of grants. We have already disbursed $27.2 billion—including $7.6 billion in grants—to these countries. The total disbursement amount is roughly six times the $4.4 billion in debt-service repayments received from DSSI countries.
- This support will be tailored to the health, economic and social shocks countries are facing. We are currently assisting more than 100 countries—home to 70 percent of the world’s population—with COVID-19 responses.
- In addition to ongoing health support, operations will emphasize social protection, poverty alleviation and policy-based financing.
- We provide grants—rather than loans—to most IDA countries at high risk of debt distress. For IDA countries—like those in Africa—the interest rates on World Bank lending is extremely low and the maturities and grace periods are long.
- Half of IDA countries already receive at least half—if not all—of their IDA resources on grant terms, which carry no re-payments at all.
- IDA automatically adjusts terms of assistance. IDA recognizes that debt sustainability is a key concern for many low-income countries. For this reason, when countries face increasing difficulties in servicing their external debt, including because of a major crisis, IDA automatically adjusts the terms of its assistance so that countries can continue to access further funds and technical assistance without increasing their debt.
- IDA recycles all of the debt service payments it receives into new financial assistance for the poorest countries. These resources are needed to fund critical new COVID-19 health projects, bundling financing with expert technical assistance. Continued operation of IDA on its existing terms will best allow IDA to meet client needs during the current crisis.