IMF Stresses Urgency of Addressing Debt Challenges in Low-Income Countries

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This week, shareholders of the International Monetary Fund (IMF) underscored the critical importance of tackling challenges faced by low-income countries, particularly those burdened by unsustainable debt levels, IMF Managing Director Kristalina Georgieva announced on Friday.

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Reports from both the IMF and the World Bank highlighted concerning economic developments and prospects for low-income developing nations, still grappling with the lingering impacts of the COVID-19 pandemic and other shocks.

The IMF adjusted its 2024 growth forecast for low-income countries to 4.7%, down from an earlier estimate of 4.9% in January. Separately, the World Bank’s report indicated that half of the world’s 75 poorest countries were experiencing a widening income gap with wealthier economies, marking a historic reversal of development trends this century.

Georgieva emphasized that the IMF is actively enhancing its capacity to assist the hardest-hit low-income countries by implementing a 50% quota share increase and allocating additional resources to its Poverty Reduction and Growth Trust.

Both Georgieva and Saudi Arabia’s Finance Minister Mohammed Al-Jadaan, chair of the IMF’s steering committee, highlighted internal reforms adopted by the IMF this week aimed at expediting and streamlining the debt restructuring process.

Georgieva noted progress made during the Global Sovereign Debt Roundtable, hosted by the IMF and World Bank, including efforts to establish timelines for debt restructurings and ensure equitable treatment of various creditors.

High debt levels continue to weigh heavily on low-income countries, particularly in Sub-Saharan Africa, where debt service payments now average 12% of revenues, compared to 5% a decade ago, Georgieva stated. She emphasized the need for affected countries to bolster domestic revenues, control inflation, rationalize spending, and develop local capital markets.

Georgieva stressed the importance of making these countries more attractive to investors, and the IMF is actively engaging with nations to support them in this endeavor.

Iolanda Fresnillo, from the European Network on Debt and Development, advocated for a new multilateral legal framework at the United Nations to address sovereign debt, similar to frameworks governing tax cooperation. She emphasized that existing approaches are insufficient, and a comprehensive framework should encompass climate change, environmental sustainability, and human rights considerations.

U.S. Treasury Undersecretary Jay Shambaugh echoed concerns about the situation facing low-income countries, cautioning emerging official creditors like China against curtailing loans to these nations while multilateral institutions like the IMF and development banks are increasing funding. He highlighted significant external public debt outflows in 2022 and warned of further challenges in 2023.


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