Fix the global debt crisis before it's too late, warns World Bank's David Malpass
What this covers
In his final interview as World Bank president, David Malpass sits down with Ian Bremmer on the GZERO World podcast to discuss all things debt. No, not your credit card or mortgage payments, but the sovereign debt that governments use to pay their bills. Global debt has ballooned to an eye-watering $300 trillion due to decades of low interest that made borrowing money extremely cheap, followed by runaway inflation driven by the pandemic and war in Ukraine. This dynamic has forced a lot of nations––particularly the poorest––to borrow more money than it can pay back. In a wide-ranging interview, Malpass explains how the global debt crisis got so bad and whether there's any hope of averting economic disaster before it's too late. He also reflects on his tenure as World Bank president, advice for his successor, China's emergence in the 21st century as the world's creditor, and why the US debt limit law needs to be rewritten. Host: Ian Bremmer Guest: David Malpass
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Global debt of $300 trillion is unsustainable and structural—driven by decades of low interest rates, post-monetarist central bank policies, and advanced economies' fiscal dominance—requiring fundamental rethinking of monetary and fiscal frameworks and debt restructuring processes to prevent systemic collapse and enable developing-country convergence.
- 60% of developing nations face debt distress as rising interest rates collide with shrinking access to financing and capital flows concentrated in advanced economies
- Post-monetarist central banks (particularly the Fed with $9 trillion in assets) have replaced monetarism's money-supply discipline with balance-sheet expansion and asset purchases, removing constraints on government spending
- No international bankruptcy process exists for sovereign debt, leaving China and private creditors to innovate non-transparent restructuring mechanisms that entrench debt servitude rather than enabling relief
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The global system lacks a formal international bankruptcy process for sovereign debt, leaving debt restructuring to ad-hoc G20 initiatives without legal standing, enabling creditors (especially China) to innovate non-transparent mechanisms to protect their position.
“so there's no International bankruptcy process so in the 1980s that meant the Latin debt crisis and led to the Brady Bond uh solution to wipe to to to swap Bank debt uh for Bond debt”
Governments use debt leverage as a political tool: by maintaining debt obligations, creditor nations preserve leverage to extract non-transparent political and diplomatic concessions from debtor nations that they would lose if they forgave the debt.
“are there also political efforts in other words I as a government want you to continue to be indebted to me even if I know you can't pay it because I can then squeeze you for other perhaps non-transparent political outcomes diplomatic outcomes that otherwise I wouldn't if I had written off the debt I would no longer have the ability to force you to do that and this has gone on through history where governments gain advantage on others by lending them money and then requiring repayment”
China has not committed to net present value (NPV) reduction in debt restructurings, meaning it extends maturities without actual debt forgiveness, preserving its claim on future borrower revenue and maintaining leverage.
“China hasn't reached the point of saying that there should be an actual reduction in Net Present Value so if you think of the time value of money if I owe you money today and you say well oh owe me the same amount of money two years from now you figure you've done me a favor but I'm still going to have to pay that whole amount and you still have no capacity toay no capacity to do it”
China is technically an industrialized economy but strategically positions itself as developing to maintain synergy with the Global South on some issues, though not on debt or technology where it acts as an advanced creditor/vendor.
“clearly they're they're they're uh industrialized and you see that everywhere in China they've come so far they don't want to give up their Roots uh which came out of the debacle of ma of uh you know the the uh cultural revolution that failed uh and so they they want to feel like they're a developing country uh and they uh Synergy with the global South well not on the debt issue huh not on debt and not on technology you know they're the ones selling now many of the advanced systems into developing countries and so they they they Bridge the two”
Convergence—where poor countries grow faster than rich countries—creates stability; without it, fragility increases. Yet advanced economies are not pursuing policies that would enable convergence; instead, they concentrate capital flows through monetary and fiscal dominance.
“we really want a world where there's some kind of convergence where the the the people in lower income levels actually get to grow faster that's what creates stability so we don't have a process to do that and there doesn't seem to be very much interest in getting to that process”
Germany understands fiscal constraint due to pre-WWII hyperinflation and post-WWII recovery experience; it has maintained currency stability and fiscal discipline for ~50 years, achieving enormous growth. The U.S. lacks this historical embedding of fiscal discipline in law.
“whether it's Democrats or Republicans it doesn't seem to matter right everyone in office in the US just wants to spend with Reckless abandon yeah why is that and and Germany understands deeply fiscal constraint but that goes back to pre-World War II the hyperinflation and then in the recovery from World War II to after remember they had very important fiscal insights in Germany that they needed to have uh checks and balances on debt and on central banks so you think 80 years later those lessons have held absolutely uh so Germany uh had huge growth for 50 years as they followed those principles”
Global investment levels are negative (below replacement) in most of the world, meaning countries are not even maintaining their current capital stock, let alone expanding it—indicating systemic under-investment and future productivity collapse.
“the investment levels in most of the world are are are negative uh you know they're not putting in enough new money even to maintain the current Capital stock”
Donald Trump's statement on CNN that the US can 'just default' on its debt represents a dangerous misunderstanding of how futures markets and derivatives deeply integrate US debt into global financial markets, making any payment delay truly destabilizing.
“I saw the CNN Town Hall a week ago when Donald Trump uh you know presly front runner for the Republican nomination said I think we can just default on that debt there's no problem there's no implication do you think he doesn't understand the economy uh we can't default uh because the the uh you know how the how active the uh Futures markets are in the derivatives that come off the US debt so there are there are deep markets every month going forward and so if you delay payment it it really is destabilizing”
Low interest rates and cheap goods over decades made money easy to borrow, which ballooned global debt; the pandemic then stalled growth while the Ukraine war shot up food and energy prices, forcing developing countries to continue borrowing despite constrained fiscal capacity.
“Decades of low interest rates and cheap goods made money easy to borrow that in turn ballooned debt globally then Along came a pandemic which stall growth and a war in Ukraine that shot up food and energy prices”
Debt cycles have occurred throughout history; in the early 2000s, old debt was wiped off, but new debt from new creditors (China and private-sector eurobond creditors) immediately replaced it, perpetuating the cycle.
“there are cycles of debt through history uh and so in this case there was a wiping off of debt in the in the early 2000s uh but then new debt came in to take its place uh with new new creditors China and private sector eurobond uh creditors uh stepped in”
Governments are currently procyclical, not counter-cyclical: they cut spending after fiscal deficits have already ballooned, rather than spending when growth slows and restraining when growth accelerates—the opposite of sound macroeconomic management.
“they're already disadvantaged governments aren't doing counter cyclical they're actually going procyclical meaning they they find Fiscal responsibility after the fiscal deficits have become huge”
Governments drawing on domestic banks to finance deficits (when bond-market access is lost) is reaching its limit and is dangerous because it depletes the banking system's capital, threatening financial stability.
“what they have been doing and it's dangerous is drawing on their domestic Banks so when they lose access to bond markets uh then they turn to their Banks and say give me some money I'm the government and I want to spend more money so that's reaching its end”
Commodity super-cycles (particularly for commodities important to Latin America) made it easier for those countries to pursue competitive growth and implement policies, whereas currently developing countries face high inflation and unfavorable commodity cycles that make policy implementation politically harder.
“I mean some of these things are also like structural uh super cycle for Commodities that made it a hell of a lot easier for Latin American countries to be you know more competitive and drive growth I mean presently coming off of the pandemic and with high inflation rates uh mean a lot of these developing countries are just taking it in the teeth”
If private sector capital is available, it should invest in developed economies; however, developing countries with underwater balance sheets cannot attract private capital and require public-sector investment—but public-sector investment alone cannot solve wealth consolidation without addressing structural policy reform.
“you can make a strong argument for the private sector should be doing much more investing in the developed world where if the money was available they would be interested in doing such when you talk about a lot of the developing countries you're talking about with balance sheets that are truly underwater um with I mean risk that is just not going to be taken on by the private sector you cannot fix the challenges of consolidation of wealth you're not going to get the growth of the middle classes with a private sector fix”
Countries pursuing stabilizing policies (fiscal discipline, stable currencies, market-based pricing) immediately attract private capital inflows; the World Bank's role is to help countries adopt these policies and create enabling conditions (capital markets development, rule of law) for private investment.
“we see over and over again when a country even including weaker countries put in stabilizing policies the markets respond right away they look ahead they say aha you've come into my range of risk tolerance”
Advanced economies are focused on current crises (Ukraine, China relations, intractable debt) rather than systemic macro rethinking, making it difficult for global leaders to prioritize long-term capital-flow restructuring despite knowing it is necessary.
“it's very hard because the they are confronted over and over with a new crisis so the the attention goes to the current crisis whether it's Ukraine or whether it's relationships with China uh whether it's the intractability of this debt problem and so it's hard to get through that this is the only moment uh where we can really rethink what's going on with fiscal and monetary policy”
China from 1993 onward adopted a deliberately strong and stable currency policy, market-based pricing, and fiscal discipline—creating investor confidence and sustained high growth for decades, a model developing countries could replicate.
“roll the clock back to 1993 China puts in a permanently strong and stable Yuan they have an active policy to say we want our currency to be strong and stable that makes it competitive globally which is a worry for the US the US doesn't have a similar uh policy of stability for its currency China does”
U.S. default is unlikely because futures markets and derivatives pricing in monthly forward expectations of U.S. debt; delaying payment destabilizes these deep markets and is politically untenable.
“we can't default uh because the the uh you know how the how active the uh Futures markets are in the derivatives that come off the US debt so there are there are deep markets every month going forward and so if you delay payment it it really is destabilizing”
When countries allocate 75% of GDP to debt interest payments (e.g., Sri Lanka), the economy has functionally failed; however, unlike private firms that can be bankrupted and liquidated, countries cannot be treated as failed entities, necessitating debt restructuring.
“if you're a Sri Lanka where I mean 75% of your GDP is going just to service interest payments on debt you've basically failed as an economy I mean if they were a private sector company you just bankrupt them and take their assets you can't do that for a country with tens of millions of people what do you do in an environment where the economic model has simply failed right”
Approximately 700-800 million people globally lack electricity access; this is unacceptable and indicates a structural failure of development policy, with the G7 and G20 beginning to discuss breaking out of the energy-restriction 'paralysis'.
“the world still has some 700 8800 million people that don't have electricity and so that's unacceptable I'm happy to see that there is now discussion within the G7 uh within the G20 of how to break out of that uh paralysis”
Government investments must be evaluated not just on their nominal amount but on whether they crowd out private-sector investment, whether they are allocated constructively, and whether they generate innovation—the CHIPS Act outcome is uncertain on all dimensions.
“what investments are being made by governments and if they're crowding out the private sector is it being done in a constructive way I'm skeptical of the latter but certainly uh uh involvement uh of a society can create Innovation we see that in the technology space which is which is uh very important the chips act for example well the chips Act is can also be read as protectionism or industrial policy so we wonder will we actually get more Innovation out of that”
Post-monetarism (central bank asset purchases and balance-sheet expansion) is intrusive, does not allow nearly as much growth, creates huge central-bank control of global capital flows, and generates an explosion of debt—and it does not work well at all.
“it's much more intrusive uh and I think does not allow nearly as much growth you also have this wholly New Concept of central banks buying assets uh in this case bonds but in Japan's case they have the authority to buy equities uh and so that changes the fundamental character of uh of of global macro we have to call it postm monism and I think it doesn't work uh well at all it means that there's uh there's huge control of the global Capital flows by central banks”
Minting a trillion-dollar coin would not constrain government spending and would not prevent default because it creates no new wealth or asset backing, so markets would not credit the claim of additional stability.
“if it worked the government would just get bigger which is not the goal so that's a that that's not a good idea from any aspect that you look at would and it wouldn't prevent the default uh either because people would look at it and say you haven't created any new wealth or any new asset so why should I believe that you're actually more stable”
Countries should be open to learning techniques that work, globally, and should adopt world techniques that work better, specifically in monetary and fiscal policy and transparency policies, rather than assuming domestic approaches are superior.
“we want to learn things that work and we should be open to the world and so let's end it by saying we need to really rethink uh the the macro policies that are underpinning that's both monetary and fiscal policies and also transparency policies”
Central banks have become major asset purchasers and the world's largest investors through post-monetarist balance-sheet expansion, creating duration mismatch (borrowing overnight money to fund long-term assets) and concentrating capital allocation authority in non-elected bodies.
“the global macro techniques that are being used that end up concentrating the debt at the top the central banks are part of it as well the lack of debt limits uh on the advanced economies”
China's authoritarian governance is not growth-enhancing in the long run, but China does implement counter-cyclical monetary and fiscal policies and maintains monetarist principles (setting interest rates based on money supply growth) that provide currency stability and fast growth.
“it's unfortunate that they're authoritarian and don't give uh freedoms to uh people in the way that they should uh but they are running we mentioned a counter cyclical policy on on uh Bank regulation they still run a monetarist policy not they're not post monist the way the advanced economies are where they where they just expand their balance sheets of the central banks China hasn't been doing that they set interest rates based on money supply growth uh sure they make mistakes uh but it allows them to have currency stability and this very fast growth rate”
Government spending behavior has shifted: rather than being constrained, governments now borrow without limits to fund current-era consumption, mortgaging the next generation's capital and productivity growth.
“do you really want to have a world where governments control the C the direction of capital flow and the and and spend hugely in advance so the the government's basically borrowing the next generation's worth of capital uh and spending it now and so that I I think is not wise”
The United States is able to run a very large fiscal deficit because it has access to financing, while most countries in the world cannot do this at all due to lack of financing access
“the US uh is able to run a really big fiscal deficit a lot of the countries in the world can't do that at all because there's no financing”
Approximately 60% of developing nations are facing debt distress, with many close to default, creating systemic fragility in the global economy.
“an estimated 60% of those nations are facing debt distress some are close to default”
India has experienced inflows and is near a transformation: it needs to develop capital markets (bond markets, non-bank financing for receivables/inventory) to accelerate growth to 8% per year, following the model China executed starting in 1993.
“what we're seeing inflows into India and into Indonesia now and if you think of India they have uh they've been doing it with bank loans uh less so with Capital Market loans so we know in order for an economy to really get going it has to have Capital markets that means bonds that means non-bank financing for accounts receivable for inventory for uh for short-term uh financing and very importantly for Equity expansion and so India is just one step away from that and they could achieve that and then be growing 8%”
Developing countries are increasingly vocal about dissatisfaction with advanced-economy-dominated solutions; 11 World Bank board members (nearly half) jointly called for rethinking energy policy to increase supply rather than restrict it.
“there has been over the last 6 months a realization that the developing countries are not satisfied with the with what the the solutions they're being asked to do Global South is going away absolutely hear it all the time and they're more vocal we hear it in the the board discussions there were 11 uh almost half of our board uh expressed in writing together they did a joint missive to with inside the World Bank to say we have to rethink how we're doing energy uh because we need more energy not less”
U.S. policy (particularly through the IRA and CHIPS Act) is perceived globally as protectionist and self-serving rather than growth-enhancing for the world, generating backlash from other countries and undermining the case for global cooperation.
“well the chips Act is can also be read as protectionism or industrial policy so we wonder will we actually get more Innovation out of that uh or and will it actually strengthen the US you know there's a lot of push back from other countries on both the IRA uh and and the uh chips act because it looks like the us is just taking care of itself”
Time is short; urgency is required to push progress on debt restructuring and macro policy rethinking before systemic collapse or irreversible divergence occurs.
“time is short uh you know you you need to push on with urgency”
After decades of debt crises, Latin America was able to be transformed for a period of years through a combination of stabilizing policies and global market support, showing that market-driven development is feasible even in formerly crisis-prone regions.
“look at in Latin America after Decades of uh debt crisis they were able to transform it didn't last very long but for a period of years Global markets really came into Latin America and modernized it uh and and supported the people of the countries uh they did it on their own but with Global Market support”
Silicon Valley Bank (SVB) and some other banks engaged in duration mismatch by using overnight deposits to buy long-term bonds, which is a particularly risky strategy that contributed to banking fragility.
“as we're seeing svb was a part of the some of the banks have they were just using overnight deposits to buy long-term bonds not a not a smart uh move”
Fiscal responsibility becomes necessary only after fiscal deficits have become huge, by which time the damage is done and the task becomes managing decline rather than preventing the crisis.
“they find Fiscal responsibility after the fiscal deficits have become huge and by counter cyclical we mean that means uh that when things slow down you do more and when things speed up you do less in terms of spending monetary policy”
The U.S. lacks a workable debt limit; the current law does not constrain spending effectively and instead creates periodic default threats, which is destabilizing and should be replaced with a functional fiscal discipline mechanism.
“the US doesn't have a workable debt limit as we are seeing uh every day and it's vital not to default”
A reformed U.S. debt limit would signal to global markets that the world's leading economy has achieved rational fiscal policy, immediately releasing capital from safe-haven demand and driving global investment and growth.
“rewriting the debt limit would the world would look at that and say holy mackerel the world's leader is now having a rational fiscal policy so that's going to be growth enhancing you would immediately begin seeing more investment in the world if there was some relief from the idea of the advanced economies taking all the money”
There is a tension between protecting national interests (avoiding dependency on authoritarian regimes like Russia and China) and maintaining a vibrant global marketplace, but both goals can logically coexist if pursued carefully.
“I think there is plenty of room in a logical world to say we don't want dependency uh but we also want to have a vibrant Global Marketplace that is competitive and the US needs to lead and be in the center of that”
Zero-percent interest rates were artificially low, directed capital into wrong parts of the economy, centralized and concentrated assets, and drove reach-for-yield behavior that put people into risky assets with duration mismatches.
“I I think it was artificially low it uh it directed Capital into the wrong parts of the it it centralized concentrated assets and also did uh this this point of reach for yield which put people into the wrong risky assets and duration mismatch”
The World Bank puts net capital flows into developing countries, creating a risk that this money ends up paying creditors rather than funding development
“the World Bank puts a net flow into these countries so there is the risk that some of that money then ends up paying creditors”
When you issue new debt to pay off existing debt by raising the debt limit (as the US does), you are essentially threatening to not pay loans you've already taken, analogous to using a credit card you've spent and then refusing to pay it off
“you're basically threatening not to pay loans you've already taken that's right the credit card that you need to pay off you you've spent the money and now what you're not going to pay”
Global debt totals approximately $300 trillion, which if divided equally among all people on Earth would amount to $37,500 per person, or approximately $75,000 per couple and $150,000 for a family of four.
“Global debt were divided equally among everyone on the planet it would amount to $37,500 per person that's like $75,000 a couple $ 150,000 for a family of four”
Growth forecast for 2023 is below 2%, with little improvement expected in 2024-2025, indicating persistent global growth stagnation across the medium term.
“our growth forecast for 2023 for Global growth is below it's falling below 2% uh and as you look into 2024 and 25 there's not much improvement”
Conversations about sovereign finances rarely discuss government assets, whereas for corporations we would routinely analyze both debt and assets, leaving a gap in understanding whether asset bases in developed countries are increasing enough to justify debt increases.
“I noticed in these conversations very rarely do we talk about the assets of The Sovereign actors where if we were talking about a corporation we'd be talking about the debt on their books but also the assets they haven't have um do we see see um a level of asset base or increase of asset base among many of the developed countries that make us less concerned about the nature of the explosion of the dead”
The key challenge for Malpas's successor is to achieve concrete outcomes ('endpoints') on debt restructuring, climate, and macro-policy rethinking, and to confront advanced economies about capital concentration ('who's really going to stand up and say you're taking all the money').
“the question is how do you really get to an endpoint on any of the issues we've just talked about on debt on the the climate challenges uh on uh how do you how do you get to the end point on This Global macro rethinking that's needed who's really going to stand up to the advanced economies and say you're taking all the money so there's not enough left for the rest of the six billion people”
This is the only moment when the world can really rethink fiscal and monetary policy and capital flow concentration, and if the answer is 'it's working, keep the system the way it is,' then there is no one close to getting it
“this is the only moment uh where we can really rethink what's going on with fiscal and monetary policy and the capital flow the capital is all flowing to a centralized point is that really what you want um and the answer is yeah it's working uh it's working and we are we'll keep we'll keep the system the way it is is anyone close to getting it”
Counter-cyclical policy means expanding spending (monetary and fiscal) when growth slows and contracting when growth accelerates, which is what ideally should be done to stabilize economies.
“by counter cyclical we mean that means uh that when things slow down you do more and when things speed up you do less in terms of spending monetary policy”
It was positive that the House passed a bill on the debt limit and that the President is now engaged in negotiation to figure out how to handle it effectively, showing constructive engagement with the problem.
“I thought it was good that the house passed a bill saying how they would do it uh and it's good now that the president is engaged in negotiation to figure out how to do it in an effective way”
The US has a unique giant municipal bond market that is non-transparent, which is a policy issue that should be examined as part of broader rethinking of global finance.
“we didn't talk about the muni bond market uh but you the US has this unique giant market that's non-transparent and so as we look forward we need to be open to World techniques that work better”
The World Bank expanded its commitments by 35% with no increase in budget, improving operational efficiency and impact per dollar spent.
“we had a core Vision uh that we want people in developing countries to have better lives tomorrow than today so the Personnel of the bank uh have really embraced that so you end up with a 35% expansion of the bank with no increase in the budget”
During the COVID-19 crisis, the World Bank expanded commitments substantially and responded quickly to multiple crises (Afghanistan evacuation, Ukraine war), demonstrating its capacity as a global crisis responder and institutional leader.
“the World Bank was a leader in that I you know we have uh very we were able to really expand commitments of the bank during the covid crisis the Afghanistan evacuation which was traumatic very sudden huge number of people had to had to get out of Afghanistan the of course the Ukraine war and the bank was a smooth participant very fast in the responses to crisis so I'm proud of that”