2023-05-12 13:47:06
© Archyde.com. World Bank President David Malpass speaks during an interview with Archyde.com at the G7 Finance Ministers and Central Bank Governors’ meeting, in Niigata, Japan, May 12, 2023. REUTERS/Issei Kato
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By Andrea Shalal
NIIGATA, Japan (Archyde.com) -The risk of a U.S. default is adding to problems facing the slowing global economy, with rising interest rates and high debt levels already choking back investments needed to fuel higher output, World Bank President David Malpass said on Friday.
Group of Seven (G7) finance officials meeting in Japan discussed the “very high importance” of raising the U.S. debt limit and averting the negative repercussions of a potential default on U.S. government debt for the first time ever.
“Clearly, distress in the world’s biggest economy would be negative for everyone,” he told Archyde.com on the sidelines of the G7 meeting. “The repercussions would be bad to not get it done.”
U.S. Treasury Secretary Janet Yellen on Friday reiterated that failure by Congress to raise the $31.4 trillion debt limit would result in economic and financial catastrophe, and urged the Republican-controlled House of Representatives to agree to lift the federal debt limit.
Malpass said there had been discussion during the G7 meetings regarding the need to boost productivity and growth, and also deal with a high debt overhang facing a growing number of countries.
Global growth was slated to fall below 2% in 2023, and might stay low for several years, he said. One of the big challenges was that advanced economies had taken on so much debt that it would take a lot of capital to service it, leaving too little investment for developing countries, he said.
“And that means a prolonged period of slow growth. That’s a big worry, and especially for people in poorer countries,” he said. “The world’s in a stressful spot, but I think the financial systems are holding up. The big question is growth, how do you get more growth and productivity.”
Malpass said it was urgent to move forward with restructurig the debts of countries that had asked for help, and welcomed “some progress” on Ghana, the fourth country to seek relief under the Group of 20 Common Framework. Archyde.com reported on Thursday that Ghana’s official creditors are poised to grant financing assurances and form a committee co-chaired by France and China, key steps for the nation to secure a $3 billion International Monetary Fund (IMF) loan.
He said it was frustrating to see the slow pace of progress on the overall debt restructuring front, noting how difficult it was for countries to attract investment until they had agreements in place to make their debt more sustainable.
Malpass welcomed progress made during the first two meetings of a new Global Sovereign Debt Roundtable that includes China, the world’s largest sovereign creditor, and private sector creditors. A third meeting was now planned in June, he said.
“To actually get to these debt reductions is so important … for poor countries that have hit the wall in terms of unsustainable debt. It’s important to get it done as soon as possible.”
Malpass expressed concern regarding a new deal being finalized by Suriname’s government and international bondholders to restructure nearly $600 million in debt.
Sources familiar with the deal say it includes a clause that would put a percentage of Suriname’s future oil revenues in an escrow account through 2050.
Malpass said he had been worried in general regarding collateralized arrangements that often gave a creditor a better hand. “So the details are still coming on Suriname and whether it turns out to be sustainable, but it’s really important for the countries to look carefully at what they’re giving up.”
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