World Bank President, David Malpass criticized other development banks on Monday, 10 February 2020, for lending too quickly to heavily indebted countries, saying that some of them were helping worsen already-challenging debt situations.

While Speaking at a World Bank-International Monetary Fund debt forum in Washington, Malpass said that banks like the Asian Development Bank, African Development Bank, and the European Bank for Reconstruction and Development were contributing immensely to the debt crisis in poor countries.

According to the global lender president, “we have a situation where other international financial institutions and to some extent development finance institutions as a whole, certainly the official export credit agencies, have a tendency to lend too quickly and to add to the debt problem of the countries.” 

Malpass believes that the African Development Bank had contributed to the debt problem by pushing billions into Nigeria. As of September 2019, Nigeria’s total debt rose to N26.14 trillion from N25.70 trillion in March 2019. The World Bank chief also indicated that the Asian Development Bank was “pushing billions of dollars” into a fiscally challenging situation in Pakistan by approving $1.3 billion in loans, which includes money for the country’s public finance and energy sector. 

Nonetheless, Malpass rendering solutions stating the need for international financial institutions (IFI) to coordinate lending and maintain high standards of transparency. A distinct way to improve transparency in lending contracts is to eliminate non-disclosure clauses that have hidden liens and contingent liabilities that could hamper economic growth. 

Using Angola as a case study, Malpass revealed that the country’s oil revenues associated with Chinese debt were hidden by non-disclosure of agreements which favours politicians and contractors.“Let the people of the country see what the terms of the debt are as their government makes commitments,” Malpass said.

However, in an article by TheGuardianUK, Director of the Jubilee Debt Campaign Sarah-Jayne Clifton accused the World Bank of “leading the lending boom,” by sowing seeds of new debt crisis across developing countries. 

Regardless, the global lender unveiled that it is implementing a new set of lending rules on July 1 as it unlocks $85 billion in loans and grants available. These new laws aim at setting new standards for transparency and will require the coordination of other multilateral lenders. 

In addition, international lenders should not only make the details of their lending contract transparent for the intended country discern, but should also endeavour to monitor (to an extent) how these loans are disbursed. This will prevent the misappropriation of loans and potentially minimize the country’s level of indebtedness. 

Elsewhere on Ventures

Triangle arrow