World Bank’s Malpass criticizes Chad creditors’ plan for failing to reduce debt

World Bank's Malpass criticizes Chad creditors' plan for failing to reduce debt
© Reuters. FILE PHOTO: World Bank president David Malpass holds a news conference at the headquarters of the International Monetary Fund during the Annual Meetings of the two groups in Washington, U.S., October 13, 2022. REUTERS/James Lawler Duggan

By Andrea Shalal

WASHINGTON (Reuters) -World Bank President David Malpass on Friday said he was deeply concerned about Chad’s longer-term ability to pay its $3 billion in external debts since an agreement reached by the African country’s creditors does not call for any actual debt reduction.

Chad on Friday confirmed a Reuters report that it had reached a debt agreement with Swiss commodities trader Glencore (OTC:GLNCY) Plc and other creditors, but sources said the deal will not reduce the overall debt level.

“The World Bank remains deeply concerned about debt sustainability in developing countries, including in Chad,” Malpass told Reuters. “The agreement reached by the creditors provides no immediate debt reduction. As a result, the debt service burden of Chad remains heavy and is crowding out priority expenditures on food, health, education and climate.”

Malpass said he had advocated that debt treatments reached under the Common Framework – a mechanism created by the Group of 20 major economies to help poor countries weather the fallout from the COVID-19 pandemic – include actual debt reductions.

Chad was the first country to request debt treatment under the framework and the first to reach a deal with creditors.

A source familiar with the negotiations told Reuters on Thursday that it would include a reprofiling to stretch out Chad’s debt payments in 2024, but no debt “haircut.”

“For longer-term sustainability beyond the window of this agreement, there needs to be a mechanism to reduce the debt,” Malpass said, noting that Chad faced large development needs, mounting domestic debt, and exposure to frequent shocks, including volatility in oil prices.

Glencore and creditors had argued that Chad did not need debt relief at the moment since higher oil prices had lifted its revenues, but Malpass said changes in the oil price could leave Chad vulnerable in the future.

Source: Reuters