Increasing debt distress in emerging markets means that China, now the world’s largest official creditor, will need to start restructuring debts in the same way that Paris Club lenders did in past crises, World Bank Chief Economist Carmen Reinhart told the Reuters Next conference on Tuesday.
“What I think China will need to do to confront this is what previous other creditors in the past had done, which is you have to restructure. And restructure big time, meaning either lower interest rates, longer maturities, write-off in principal or some combination of that,” Reinhart said in a panel discussion on economic inequality. She said that during the COVID-19 pandemic, China would need to take on a “new role” that has been an “old role” for Paris Club lenders, as Beijing is now facing for the first time wider spreads and difficulties in countries’ ability to service debt on a broad scale, reported Reuters. China has signed up to a G20 debt suspension initiative that allows up to 73 of the world’s poorest countries to halt payments on official bilateral debts to help fund critical health initiatives, and it has agreed to a further G20 debt restructuring framework. “The real challenge is next, when we move to the stage where you have real writedowns to contend with,” said Reinhart.