WB "Low-Income Countries' Debt Hits Record High"... China-Related Debt Tripled in 10 Years

Last Year's Debt Scale $860 Billion
"Efforts to Reduce Poverty Set Back by Several Years"

David Malpass, President of the World Bank (WB)
[Image source=Reuters Yonhap News]

[Asia Economy Reporter Kim Suhwan] David Malpass, President of the World Bank (WB), stated that amid the COVID-19 pandemic, inequality between advanced countries and developing countries has worsened, with the debt levels of developing countries reaching an all-time high due to increased borrowing from China.

On the 11th (local time) at a WB event, President Malpass warned, "The global economy is facing a critical challenging situation due to the rapidly increasing debt levels."

"External debt of low-income countries nearly doubled relative to GNI"

According to WB data, the debt burden of low-income countries surged by 12% last year to $860 billion, marking a record high.

In particular, the ratio of external debt to Gross National Income (GNI) in low-income countries rose sharply from 26.1% in 2011 to 41.5% last year. The number of countries with debt-to-GNI ratios exceeding 100% increased from 4% to 14%. The ratio of external debt to exports also jumped from 92.1% to 153.9% during the same period.

This rapid increase in debt levels among low-income countries was attributed to a sharp rise in debt owed to China.

According to the WB, the total debt owed to China by low-income countries reached $170 billion last year. The WB stated that this figure has more than tripled over the past decade since 2011.

A significant portion of this debt to China is reported to be funds lent by China to low-income countries under the pretext of building social infrastructure.

In fact, as China has expanded infrastructure support to African countries, loans have increased, with Sub-Saharan African countries having the highest debt to China among all regions. As of last year, debt to China in this region accounted for 45% of the total debt owed to China by all low-income countries.

Additionally, debt to China in South Asia reached $36.3 billion last year, a nearly ninefold increase compared to $4.7 billion in 2011. The WB noted that China is currently the largest creditor to the Maldives, Pakistan, and Sri Lanka.

President Malpass emphasized, "A comprehensive approach including debt relief, restructuring, and improved transparency is necessary for these countries," adding, "A manageable level of debt is essential for economic recovery and poverty reduction."

"The global economy faces a ‘tragic reversal’"

President Malpass particularly highlighted that many developing countries are facing challenging situations due to delayed vaccine rollouts, rising prices, limited policy support, and job shortages.

He expressed concern that while advanced countries are expected to see nearly 5% growth in per capita national income this year, low-income countries will see only 0.5%, indicating a sharp increase in inequality.

President Malpass predicted that although advanced countries have returned to pre-pandemic economic growth levels, the GDP of developing countries will remain about 4% below pre-pandemic forecasts next year.

He stated, "We are witnessing a ‘tragic reversal’ in development in many respects," adding, "Efforts to reduce extreme poverty have regressed by years, and in some cases, decades."

He also mentioned that the WB is raising $100 billion from advanced countries to address the widening gap.

Meanwhile, President Malpass forecasted that the global economy will grow by 5.7% this year, with a growth rate of 4.4% expected next year.

This content was produced with the assistance of AI translation services.