WASHINGTON: World Bank President David Malpass has warned that the coronavirus pandemic may have driven as many as 100 million people into extreme poverty.
The global lender previously estimated that 60 million people would fall into extreme poverty due to COVID-19, but the new estimate puts the figure at 70 to 100 million, adding that the number could go higher if the pandemic worsens.
Malpass said the situation makes it imperative that creditors reduce the amount of debt held by poor countries at risk, going beyond the commitment to suspend debt payments, and countries will be obliged to restructure their debt.
“The debt vulnerabilities are high, and the imperative of getting light at the end of the tunnel so that new investors can come in is substantial,” Malpass said.
Advanced economies in Group of 20 have committed to suspending debt payments from the poorest nations through the end of the year, and there is growing support for extending that moratorium into next year.
Malpass said that will not be enough, since the economic downturn means those countries, which already are struggling to provide a safety net for their citizens, will not be in a better position to deal with the payments.
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He said the amount of debt reduction needed will depend on the situation in each country. “I think the awareness of this will be gradually, more and more apparent,” he said, particularly “for the countries with the highest vulnerability to the debt situation.”
The World Bank has committed to deploying $160 billion in funding to 100 countries through June 2021 in an effort to addresses the immediate emergency, and about $21 billion had been released through the end of June. Even so, extreme poverty, defined as earning less than US$1.90 a day, continues to rise.
Malpass said the deterioration is due to a combination of the destruction of jobs during the pandemic as well as supply issues that make access to food more difficult. “All of this contributes to pushing people back into extreme poverty the longer the economic crisis persists,” he added.
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Newly-installed World Bank Chief Economist Carmen Reinhart has called the economic crisis a “pandemic depression,” but Malpass was less concerned with terminology. “We can start calling it a depression. Our focus is on how do we help countries be resilient in working out on the other side.”
Malpass said he has been frustrated by the slow progress among private creditors in providing comparable debt suspension terms for poor countries. The Institute for International Finance has set up a framework to waive debt service payments but member banks had not received any applications.
Having a clear view of the size of each country’s debt and the collateral involved also are key to being able to help the debtor nations. said Malpass. China is a major creditor in many of these countries but he said more needs to be done to understand the terms of loans.