Need to Take a Longer-term Perspective on Debt Sustainability, Says World Bank President

Looking beyond the DSSI, one must consider debt stock reduction, he said. Otherwise there’s no light at the end of the debt tunnel for the people in the debtor countries, he added. The crisis-related lending operations supported by our institutions have put heavy emphasis on short-term financial flows. Those address liquidity needs but not the solvency crisis facing the world’s poor, Malpass said.

For example, reprofiling debt payments addresses liquidity but not solvency. There is a need to strengthen the IMF/WB Debt Sustainability Analyses to use a longer window, he said. This concern about the debt overhang also applies to the G-20 discussion of a common framework on debt treatment, he said.

It’s important that the framework not just kick the can. Given the urgency of the debt crisis, it’s urgent to make rapid progress toward debt stock reduction, because debt burdens are crushing recovery and reversing decades of progress on poverty reduction, Malpass said. Malpass also welcomed the public call of several European shareholders, including Ministers of Denmark, the Netherlands, France, Germany, Spain and Sweden for the World Bank and the IMF to deliver a coherent approach to debt restructuring that helps address the looming debt crisis.