IMF warns of debt restructuring wave amid costly delays
The International Monetary Fund (IMF) has raised concerns about a potential wave of debt restructuring requests and the challenges of handling them, as current restructuring cases face costly delays. The IMF’s Managing Director, Kristalina Georgieva, has warned that approximately 15% of low-income countries are already in debt distress, with another 45% facing high debt vulnerabilities. The situation in Zambia is the most recent example of a country struggling with debt, and Ghana is among those currently seeking an IMF-support program, but facing hurdles in securing an agreement with its bilateral creditors for debt restructuring.
Speaking ahead of the IMF/World Bank Spring Meetings, Georgieva stated that about a quarter of emerging economies, including Ghana, are at high risk and facing “default-like” borrowing spreads. In response to these concerns, she made a passionate appeal to richer countries to support weaker ones, stating that “additional support from wealthier countries is essential. I would like to make a double plea on their behalf: help them handle the burden of debt, which was made so much harder by the shocks of the past years; and secondly, help ensure that the IMF continues to be in a position to support them in the years ahead.”
The IMF, the World Bank, and India as G20 Chair recently established a Global Sovereign Debt Roundtable to help speed up restructuring cases, including those under the G20’s Common Framework. The Roundtable brings together public and private creditors, as well as borrowers, to help reach consensus on standards and processes. This initiative is aimed at addressing the challenges associated with handling debt restructuring requests and ensuring that countries do not face delays that can exacerbate their economic struggles.
To ensure that it can continue providing vital support and catalyze financing from others, the IMF has increased its interest-free lending more than four-fold to $24 billion since the beginning of the pandemic. However, Georgieva has called on wealthier members to help address fundraising shortfalls in the IMF’s Poverty Reduction and Growth Trust, which is critical to the Fund’s ability to provide support.
Georgieva emphasized that it is now more important than ever to step up cooperation to strengthen the ropes that tie countries together on this issue and the full range of economic challenges they face. She added that the IMF has provided nearly $300 billion in new financing for 96 countries since the start of the Covid-19 pandemic, with a historic Special Drawing Rights (SDR) allocation of $650 billion to boost member countries’ reserves.
The IMF has also developed innovative tools such as the Food Shock Window and the Resilience and Sustainability Trust to help members meet new challenges. Additionally, the IMF has stepped up support for vulnerable middle-income countries, including through a temporary increase in the amount members can borrow from the Fund. Georgieva highlighted that the IMF’s role is to be a source of stability in turbulent times, and it is precisely what the Fund is here to do.
In conclusion, the IMF’s concerns about a potential wave of debt restructuring requests and the challenges of handling them require the support of wealthier countries to assist weaker ones in managing their debt burdens. The establishment of the Global Sovereign Debt Roundtable is a step in the right direction, but more needs to be done to ensure that countries do not face delays that can worsen their economic struggles. The IMF’s provision of new financing and innovative tools, coupled with increased support for vulnerable countries, is vital to support the global economy in turbulent times.
