World’s Poorest Nations Face ‘COVID-19 Debt Trap’

WASHINGTON—The world has averted a systemic debt crisis amid the pandemic. However, the poorest developing countries continue to face significant debt problems, raising global worries over multiplying debt traps by creditors like China.

Addressing the rising risk of a systemic debt crisis in developing countries is one of the key themes at this week’s virtual spring meeting of the International Monetary Fund (IMF) and the World Bank.

Economists believe tackling debt vulnerabilities in poor nations is critical for preventing divergent recoveries around the world. Hence, IMF and World Bank officials are calling for extending debt relief for the most vulnerable countries, to help them address challenges caused by the pandemic.

“The poorer countries don’t have a way out of these very heavy debt burdens,” World Bank President David Malpass said during a press conference on April 7.

He said these countries face inequality in terms of access to credit markets and have growing fiscal deficits that are becoming problematic.

In addition, Malpass referred to China’s controversial lending practices without naming it and said opaque debt contracts and an unbalanced relationship between creditors and debtors complicate debt relief efforts.