World Bank: Emerging bell to bolster financial sector

Developing countries need to boost their financial sectors immediately, the World Bank said, warning that risks are rising along with inflation, interest rates and a lack of transparency about public and private debt.

The World Bank has highlighted its long-standing concerns about the lack of transparency in China’s lending and sovereign debt, but also noted the growing risks to the private sector in its latest Global Development Report.

The Bank’s research shows that 46% of small and medium-sized enterprises in developing countries are expected to lag behind in debt payments within six months, but that number has doubled in some countries, according to chief economist Carmen Reinhart.

Reinhart said it was closely monitoring developments in the private debt market in major emerging markets such as India, South Africa, the Philippines and Kenya, where more than 65% of small and medium-sized enterprises are expected to have late payments.

And at the state level, Turkey, whose credit rating was downgraded to BB by Fitch last week, has been in crisis for several years and could be the last straw, Reinhart said.

“There is a huge need for better transparency in private sector debt,” Reinhart said.

The percentage of non-performing loans had remained below what was estimated at the beginning of the pandemic, but Reinhart stressed that the easing of accounting standards could mask a “hidden problem of non-performing loans”.

The report speaks of the urgent need to make greater efforts to improve private sector debt transparency, more proactive loan management, including out-of-court solutions, and to accelerate work on tackling high public debt.