The debt of the industrialized countries is piling up to global challenges, says the President of the World Bank

• “The debt ratio of advanced economies is higher than ever,” World Bank President David Malpass said in an interview with CNBC.
• When asked about his plans after stepping down in June – before April 2024, when his term expires – he said he was “considering options”.

David Malpass, President of the World Bank Group in Washington, DC on April 13, 2023

Bloomberg | Bloomberg | Getty Images

Developed countries around the world are facing a debt problem and this is exacerbating other problems in the global economy as central banks continue to grapple with persistent inflation, according to World Bank President David Malpass.

Speaking to CNBC’s Martin Soong at the meeting of G-7 finance ministers and central bank governors in Japan, Malpass stressed the need to address record-high global debt levels for reasons of stability.

“The debt ratio of advanced economies is higher than ever,” he said, adding that developing countries are also facing a similar problem. “That means the economy has to work even harder to pay back money already borrowed.”

The World Bank has stressed the need for transparency in managing rising debt amid a range of global economic woes, including banking sector stress and persistent inflation.

The organization chaired the Global Sovereign Debt Roundtable in Washington DC last month and stressed its call for information sharing to accelerate the process of debt restructuring around the world.

In its year-end report released in December, the World Bank said total external debt for low- and middle-income countries rose 5.6% in nominal terms to $9 trillion.

For all countries, the International Institute of Finance estimated earlier this year that the face value of global debt has fallen compared to 2020 and will be below $300 trillion in 2022.

“One of the things for the advanced economies is to try to find as stable an environment as possible so that growth, which is really important to the world at this point in time, can come back,” Malpass told CNBC.

“The risk-free interest rate has risen in advanced economies, but credit spreads have also widened in developing countries,” he said.

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The risk-free rate of return indicates the interest rate that an investor can expect for an investment without risk.

“She[investors] “We’re always going to pick the safest advanced economies first, so what’s left is what’s left that can go to developing countries, and that’s just not enough,” Malpass said, adding that less developed economies face a “double burden of increased Debt Burden Costs” rather than the ability to turn it around.

When asked about his plans after stepping down in June – before April 2024, when his term expires – he said he was “considering options”.

“We’ve been so busy at the bank doing really important things — this debt, this growth initiative, we’re in the final quarter of our fiscal year,” he said.