Carmen Reinhart Senior Vice President and Chief Economist of the World Bank Group warned that the list of emerging market countries facing debt distress is rising rapidly as global interest rates rise.
“In low-income countries, debt risks and debt crises are not hypothetical,” Reinhart told Bloomberg on Tuesday. “We’re pretty much there already.”
The World Bank’s chief economist added, the global debt crisis must be resolved through real debt reduction, and if not, it will be a first aid tool that wears out very quickly.
The comments follow a similar warning from Goldman Sachs that emerging markets are entering a new cycle of default, with Sri Lanka likely to be the first of several on the horizon. Russia defaulted on its foreign currency debt on Monday.
Speaking of other pressures facing the world’s economies, Reinhart said central banks have been slow in their efforts to cool soaring inflation, which has been driven in large part by supply chain bottlenecks and the Russian war in Ukraine.
“The big hope is a soft landing that central banks and major economies will be able to engineer,” Reinhart said. “I’m skeptical.”
