Focusing on Debt

I have been deeply engaged on debt transparency and sustainability throughout my career—dating back to my work at the US Treasury in the 1980s. The current global debt crisis is one of the biggest obstacles to development. I have worked hard to shift the system toward transparency and sustainability, both as Undersecretary of the Treasury for International Affairs in 2017 and 2018 where I testified on these topics; and as President of the World Bank Group.

Debt sustainability is essential in attracting new investment, boosting growth, and breaking the poverty cycle. At the G7 summit in Hiroshima, I raised the urgency of addressing unsustainable debt burdens in developing countries.

While in Japan, I sat down for an interview with Nikkei’s Kosuke Takami, and outlined the steps needed to provide debt relief for overburdened countries. I made the point that China needs to be willing to come to an agreement that provides debt relief, and private sector creditors also need to speed up.

Back in the United States, I had a good conversation with Ian Bremmer of GZERO Media, looking at the causes and impacts of the debt crisis. With 60 percent of low-income countries either in debt distress or at high risk of it, interest rates climbing at the fastest pace in four decades, and economic growth slowing nearly everywhere, there is a need for more effective global instruments to tackle debt sustainability and debt restructuring. The video of our interview can be watched in the United States, and the audio podcast is available for a global audience.

With CNN International’s Julia Chatterley, I discussed the role of the Global Sovereign Debt Roundtable, which we launched as a forum to discuss pathways forward and bring the debtors and private sector creditors into the discussion, which I think is a necessary step.

I’ve also written a blog on parallel exchange rates which are expensive, highly distortionary, and associated with higher inflation and lower growth and investment. Parallel exchange rates can also make future debt service payments more burdensome and increase the risk of debt distress.?

In all of my recent engagements, I have highlighted the need for policies that boost growth. Markets are forward-looking, so credible government spending restraint would provide immediate encouragement to growth-oriented investment. And central banks should put more focus on policies that encourage currency stability and supply creation, not only demand destruction. That will be the topic of my final LinkedIn update as World Bank Group president, tomorrow.

– David