Shareholders of the International Monetary Fund (IMF) 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% from an estimate of 4.9% 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% 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% on average, compared to 5% 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% 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 and paring back spending.
Published in The Express Tribune, April 21st, 2024.
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