By Andrea Shalal

WASHINGTON, (Reuters) – The world’s lowest-income countries saw their debt rise by 12% to $860 billion in 2020, as they responded to the COVID-19 crises with huge fiscal and monetary stimulus packages.

David Malpass (World Bank President) stated that there was a significant increase in vulnerability to debt for low- and medium-income countries. He called on countries to take immediate action to reduce their debt.

Malpass stated that a holistic approach is needed to address the problem of debt, which includes debt reduction, faster restructuring, and better transparency. This statement was included in the International Debt Statistics 2022 Report.

He stated that sustainable debt is vital to economic recovery as well as poverty reduction.

Reports indicate that the combined external debt stocks of middle- and low-income countries increased 5.3% to $8.7 Trillion in 2020, which affected all countries.

According to the report, the growth in external debt has outpaced both gross national income and export growth. The ratio of their external debt-toGNI (excluding China) rose by five percentage points in 2020 to 42%. Their debt-toexport ratio jumped from 126% to 154% to 2020 to reach 154%.

Malpass stated that debt restructuring was urgently required due to the imminent expiration of the Group of 20 major economy’s Debt Service Suspension Initiative, (DSSI) which offered temporary deferral of payments.

A Common Framework for Debt Treatments was launched by the G20, Paris Club of official creditors, last year. It aims to reduce unsustainable debt levels and long-term financing gaps in DSSI eligible countries. However, only three countries (Ethiopia, Chad, Zambia) have yet applied.

It was revealed that the net inflows of multilateral creditors from low- and mid-income countries rose by $117 billion to 2020. This represents their highest levels in over a decade.

It said that net lending to low income countries increased 25% to $71billion, the highest in 10 years. The IMF, other multilateral creditors, and bilateral creditors provided $42billion and $10 billion respectively.

Carmen Reinhart is the chief economist at the World Bank. She said that the problems facing countries with high levels of debt could worsen if interest rates rise.

She stated that policymakers must be prepared for debt distress if financial markets conditions become less stable, especially in developing and emerging economies.

To increase transparency over global debt levels, the World Bank expanded their 2022 Report by providing disaggregated and more detail data on external debt.

The data now include a breakdown of a borrowing country’s external debt stock to show the amount owed to each official and private creditor, the currency composition of this debt, and the terms on which loans were extended.

Data for DSSI-eligible Countries also include the deferred debt service in 2020 by each bilateral lender and projected debt-service payment amounts to them until 2021.