The IMF is worried about the debt challenge

The IMF is worried about the debt challenge

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

Various reports from the IMF and the World Bank this week raised concerns about economic developments and prospects in low-income developing countries, which are still struggling with the effects 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 are experiencing a widening income gap with the richest economies for the first time this century in the history of a reversal of development.

Georgieva said the IMF is working to strengthen its ability to support low-income countries hit hardest by recent shocks, including through a 50% quota 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 faster and smoother.

Georgieva said the Global Sovereign Debt Roundtable meeting hosted by the IMF and the World Bank this week had made progress in setting a timeline for debt restructuring and ensuring comparability of treatment for various creditors.

He said high debt levels are putting a huge burden on low-income countries, including many in Sub-Saharan Africa, where countries now face debt service payments of 12% on average, compared to 5% a decade ago. High interest rates in advanced economies have attracted investment, and increased borrowing costs.

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

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