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World Bank’s Malpass: US debt limit standoff adds to global economic woes


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World Bank’s Malpass: US debt limit standoff adds to global economic woes

WORLD BANK. World Bank President David Malpass speaks during an interview with Reuters at the G7 Finance Ministers and Central Bank Governors' Meeting, in Niigata, Japan, May 12, 2023.

Issei Kato/Reuters

'Clearly, distress in the world's biggest economy would be negative for everyone,' World Bank President David Malpass says on the sidelines of the G7 finance leaders' meeting

NIIGATA, Japan – The risk of a US payments default is adding to problems facing a slowing global economy, with rising interest rates and high debt levels already choking back investments needed to fuel greater output, World Bank President David Malpass said on Friday, May 12.

Group of Seven (G7) finance officials meeting in Japan discussed the “very high importance” of raising the US debt limit and averting the negative repercussions of a potential default on US government debt for the first time ever.

“Clearly, distress in the world’s biggest economy would be negative for everyone,” he told Reuters on the sidelines of the G7 meeting. “The repercussions would be bad to not get it done.”

Malpass said that he believed that the standoff between Democrats and Republicans over raising the $31.4-trillion US statutory borrowing cap would be resolved, adding, “There’s clear energy from the US to get it done and that’s stated.”

The Congressional Budget Office on Friday warned of a “significant risk” of US default in the first two weeks of June without a debt ceiling increase, and said US Treasury payment operations would remain uncertain throughout May.

Growth, productivity slowing

Malpass said there had been discussion during the G7 meetings about 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 could 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 restructuring 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. Reuters reported on Thursday, May 11, 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 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 about 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 about 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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