The IMF is sounding the alarm on debt challenges

WASHINGTON:

International Monetary Fund (IMF) shareholders this week agreed on the importance of addressing the challenges facing low-income countries, many of which are facing unsustainable debt, IMF Managing Director Kristalina Georgieva said on Friday.

Multiple reports from the IMF and World Bank this week are raising alarm bells about economic developments and prospects in low-income developing countries, which are still struggling with the aftermath of the COVID-19 pandemic and other shocks.

The IMF cut its 2024 growth forecast for low-income countries as a group to 4.7 percent from an estimate of 4.9 percent in January. In a separate report, the World Bank said half of the world’s 75 poorest countries are experiencing a widening income gap with the richest economies for the first time this century in a historic reversal of growth.

Georgieva said the IMF is working to strengthen its capacity to support low-income countries hit hardest by recent shocks, including by increasing its quota share by 50 percent and adding resources to its Trust for Poverty Reduction and development.

Georgieva and Saudi Arabia’s Finance Minister Mohammed Al Jaddan, who chairs the IMF’s steering committee, both said internal reforms approved by the IMF this week would help make the debt restructuring process faster and smoother.

Georgieva said a meeting of the Round Bank on Global Public Debt organized by the IMF and the World Bank this week had made progress on setting timetables for debt restructurings and ensuring comparability of treatment for various creditors.

He said high debt levels are a huge burden for low-income countries, including many in sub-Saharan Africa, where countries now face debt service payments of 12 percent on average, compared with 5 percent a decade ago. High interest rates in advanced economies have lured away investment and raised borrowing costs.

“What’s heartbreaking is that in some countries debt payments are up to 20% of revenue,” Georgieva said, adding that this meant those countries had far less resources to invest in education, health, infrastructure and jobs. Affected countries had to increase their domestic revenue by raising taxes, continuing to fight inflation and cutting spending.

Published in The Express Tribune, April 21^St2024.

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