Arab News, Mon, Apr 22, 2024 | Shawwal 13, 1445
IMF concerned about debt burden on
poor nations
WASHINGTON: Shareholders of the International Monetary
Fund agreed this week on the importance of addressing challenges faced by
low-income countries, many of which are facing unsustainable debt burdens, IMF Managing Director Kristalina Georgieva said on Friday.
Multiple reports from the IMF and the World Bank this week sounded the alarm
about economic developments and prospects in low-income developing
countries, which are still grappling with the aftermath of the COVID-19
pandemic and other shocks.
The IMF lowered 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 were
experiencing a widening income gap with the wealthiest economies for the
first time this century in a historical reversal of development.
Georgieva said the IMF was working to reinforce its ability to support
low-income countries hit hardest by recent shocks, including through a 50
percent quota share increase and by adding resources to its Poverty
Reduction and Growth Trust.
Georgieva and Saudi Arabia’s Finance Minister Mohammed Al-Jadaan, who chairs
the IMF’s steering committee, both said internal reforms adopted by the IMF
this week should help make the debt restructuring process speedier and
smoother.
Georgieva said a meeting of the Global Sovereign Debt Roundtable hosted by
the IMF and the World Bank this week had made progress on setting timelines
for debt restructurings and ensuring comparability of treatment for various
creditors.
She said high debt levels posed a huge burden for low-income countries,
including many in Sub-Saharan Africa, where countries are now facing debt
service payments of 12 percent on average, compared to 5 percent a decade
ago. High interest rates in advanced economies have lured away investments,
and raised the cost of borrowing.
“What is heartbreaking is that in some countries debt payments are up to 20
percent of revenues,” Georgieva said, adding that this meant those countries
had far fewer resources to invest in education, health, infrastructure and
jobs.
Affected countries needed to increase their domestic revenues by raising
taxes, continuing to fight inflation, paring back spending and developing
local capital markets, she said.
The Bulgarian economist said it was vital for these countries to make
themselves more attractive to investors, and said the IMF was engaging with
countries to help them do that.
Iolanda Fresnillo, with the non-profit European Network on Debt and
Development, said the UN should implement a new multilateral legal framework
to deal with sovereign debt, in a similar way that is currently being done
for a new framework to govern tax cooperation.
The current approach is too piecemeal and a broader framework should take
into account climate change, environmental degradation and human rights, she
said.
US Treasury Undersecretary Jay Shambaugh raised concerns about the situation
facing low-income countries last week, warning China and other emerging
official creditors against free-riding by curtailing loans to low-income
countries just as the IMF or multilateral development banks were pouring
funds in.
Almost 40 countries saw external public debt outflows in 2022, and the flows
likely worsened in 2023, he said.