Calling China to Action: World Bank Sounds Alarm on Global Debt Crisis

*People line up outside a bakery in Khartoum, Sudan for buying foods. The country has one of the highest debt levels in the developing world. Photograph: Ashraf Shazly/AFP/Getty Images*

China’s active engagement in facilitating debt relief measures is imperative to alleviate the “silent crisis” hindering poverty eradication efforts in the world’s most impoverished nations, stated a senior World Bank official. Ayhan Kose, the Bank’s deputy chief economist, emphasized the need for China’s proactive involvement in negotiations to provide financial assistance to countries grappling with debt distress or on the brink of it.

“China needs to be more active,” Kose emphasized in an interview with The Guardian. “On debt relief, China is the big player. China is critical.” With China emerging as a significant creditor nation in the last 15 years, Kose stressed the importance of Beijing assuming responsibility for facilitating an effective post-pandemic debt relief system.

The World Bank and the International Monetary Fund (IMF) have expressed growing concerns about the adverse impact of the pandemic and rising interest rates on low-income countries. Currently, 11 countries are in distress, and an additional 28 are at high risk of entering a similar predicament.

Highlighting the plight of impoverished nations, Kose underscored that these countries face challenges in accessing global financial markets and are not receiving adequate debt relief. The repercussions include cuts in education and healthcare spending, exacerbating the crisis and hindering progress towards development goals.

Describing the situation as a “silent crisis,” Kose noted that it often goes unnoticed in mainstream media, despite its significant implications. While no systematically important country has defaulted on debt payments, smaller nations, often grappling with conflict and economic challenges, collectively account for 16% of the global population.

Kose lamented that without timely debt relief, 40% of low-income countries would experience a decline in per capita income by the end of the current year compared to 2019 levels, thereby delaying development progress.

Since the establishment of the Common Framework in 2020—a system aimed at providing debt relief on a country-by-country basis—only four nations have applied for assistance. However, only Chad and Zambia have reached agreements thus far.

While acknowledging the importance of making the Common Framework more effective, Kose cautioned against overlooking the severity of the debt crisis. He urged the global community to address the issue promptly, emphasizing the consequences of prolonged debt paralysis on the development prospects of affected nations.