MADRID: World Bank chief economist Carmen Reinhart said it could take many more years before the growing number of heavily indebted countries see any substantive reduction in their debts.
Reinhart, who returns to Harvard University on July 1 after a two-year public service leave, said the economic woes facing Sri Lanka were just the tip of the iceberg and more countries would likely join its ranks.
“Be prepared for the long haul,” Reinhart told Reuters in a remote interview.
“My fear – but I think it’s fear founded on the basis of the historical experience – is that to have a comprehensive approach that actually delivers substantive debt reduction will take a long while. Years,” she said, noting that the historical average was around eight years.
Reinhart said Sri Lanka’s woes reflected the balled force of a currency crisis, high inflation, a collapse in output, financial strains and a debt crisis, but other countries were also facing major problems.
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“There are more Sri Lankas on the way. You have countries like Myanmar, Laos. These are not major players in global markets, but they are falling,” she said, noting that others, including Ghana and Egypt, were facing significant shocks as a result of the war in Ukraine and surging food and energy prices.
“There are a lot of countries in precarious situations,” she said.
Reinhart said the Common Framework for debt treatments agreed to by the Group of 20 major economies and the Paris Club of official creditors in October 2020 had proven to be a disappointment, resulting in not even a single debt restructuring since its launch in October 2020.
She said the lack of progress was not surprising.
“The historical experience has been like pulling teeth, and slow moving at that,” she said. “Every creditor has for their own reasons engaged in foot dragging. China and private creditors have their own incentives to delay.”
Reinhart downplayed the prospects for any significant change in the approach of advanced economies to the mounting issues facing the developing world, including the snowballing impact of the COVID-19 pandemic on learning outcomes and poverty rates.
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“This ain’t going away quickly. Everyone is preoccupied with their own problems. There’s a tendency to focus on the domestic issues and everything else goes on the back burner,” she said.
“I hate to be like a wet rag, but I do think things will get worse before they get better. We’re still trying to sort out what the new normal is,” she said. “My sense is that we will see more difficult times before we turn the corner.”
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