The World Bank highlights four economic risks from the pandemic

The World Bank has highlighted four economic risks from the COVID-19 pandemic World Development Report 2022: Financing for an Equitable RecoveryAnd Posted this Tuesday, February 15th.

It’s about an increase in doubtful loans and difficulties in the financial sector, a lack of options for households and businesses to forgive debt contracted during the pandemic through a formal bankruptcy process, greater restrictions on access to credit, and high levels of public debt.

the loan is doubtful when there are indications that the borrower will not be able to repay it, or if more than 90 days have passed without paying the agreed installments; According to the European Central Bank.

Given the four risks listed, the report suggests concrete steps that policy makers can take to address them and support a strong and equitable recovery.

Here is a summary, available at website From the World Bank, for actions that can be implemented to address each of the economic risks (in bold):

  • Increase in doubtful loans. By increasing transparency and reducing the rate of non-performing loans, financial institutions can remain stable, well-capitalized and able to provide credit, particularly to low-income families and small businesses.
  • Late settlement of doubtful loans. Effective insolvency proceedings, including out-of-court options, can reduce the social costs of widespread indebtedness, prevent misallocation of resources to unproductive “zombie companies,” and reduce the need for government intervention in debt settlement. Delays in taking action can limit access to credit, discourage entrepreneurship, and lead to the conversion of private debt into public debt when governments are forced to implement bailouts.
  • More restricted access to credit. Innovations in digital finance and financing models can play an important role in enabling lenders to reliably assess and manage risks borne by borrowers, help them continue to extend credit to low-income borrowers, and enhance your financial resilience.

“It is imperative to work so that broad access to credit and capital allocation is growth oriented. This would allow smaller and more dynamic companies, as well as sectors that enjoy With the greatest potential for growth, through investment and job creation.

  • High levels of public debt.Proactive management and public debt reduction can free up the financial resources needed to support recovery. Delays in addressing debt sustainability are associated with long periods of stagnation, high inflation and low spending on social safety nets, public health and education, which disproportionately affect the poor.

For his part, the World Development Report 2022: Financing for an Equitable Recovery It reveals that in response to the COVID-19 crisis, between March and August 2020, 29 countries used unconventional monetary policy tools, such as asset purchase programmes.

Among the countries that have adopted this type of program are Costa Rica, Angola, Egypt and Uganda.

The World Bank notes that the COVID-19 epidemic has led to the largest global economic crisis in more than 100 years, and adds that in 2020, activity decreased in 90% of countries, the global economy contracted by about 3% and poverty increased worldwide. For the first time in a generation.

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