Friday, 30 December 2022 03:10

When debt crises occur, don't just blame the pandemic

Written by Evelyn Alas

According to the World Bank, as a result of the COVID-19 pandemic, global debt has increased. Today, 58% of the world's poorest countries are over-indebted or at high risk of becoming so, and the danger is spreading to some middle-income countries as well.

High inflation, rising interest rates and slowing growth have set the stage for financial crises similar to those that engulfed many developing economies in the early 1980s.

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But it would be a mistake to blame the pandemic if such crises were to occur. The seeds were sown long before COVID-19. An analysis of a sample of 65 developing countries indicates that, between 2011 and 2019, public debt increased by 18% of GDP on average, and much more in several cases.

Multilateral banking invites countries in the region to increase growth. The best way to escape the debt trap is to get out of it.

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Measures to improve business conditions, better resource allocation and healthy market competition are essential policy measures to boost productivity growth.  Governments should take advantage of this crisis to accelerate key structural reforms.

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Accelerate fiscal policy reforms. Improving the efficiency of tax administration and closing loopholes are a good start, but governments should broaden tax bases in ways that support long-term growth rather than hinder it.

Translated by: A.M