The Case for Bold Debt Relief for the Poorest Countries

Uneven growth rates among countries this year are not the only risk to the global economic recovery that must be addressed this week when officials from 190 countries gather virtually for the spring meetings of the International Monetary Fund and the World Bank. They also need to get their arms around the growing risk of a systemic debt crisis in the developing world that highlights the striking contrast between worrisome debt dynamics in the most vulnerable economies and the luxuries afforded to the richest countries in the world. This contrast is fueled by differences in policy flexibility and financial resilience that stand to amplify the inequality shock inflicted on the global economy by Covid-19. Efforts to combat these risks can become self-reinforcing through more timely and audacious pro-growth debt relief.

Almost all economies worldwide followed a similar game plan when responding to the “sudden stop” that followed the outbreak of Covid-19 last year. They deployed significant fiscal and monetary measures to minimize the disruptions to lives and livelihoods from a fatal pandemic. This included heavy reliance on deficit spending and debt financing to protect populations from the effects of the virus and lost income.