(Bloomberg) – The International Monetary Fund has warned of an “economic meltdown” in some low-income countries unless creditors in the world’s richest countries suspend debt service obligations and help renegotiate new terms.
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About 60% of the world’s poorest countries are at high risk or are already in debt distress, double the proportion in 2015. Another Thursday, IMF Managing Director Kristalina Georgieva and Sila Pazarbasioglu, the fund’s head of strategy, policy and audit, said in a blog post.
With the G20 debt service suspension initiative ending at the end of the year and interest rates ready to rise, “low-income countries will find it increasingly difficult to service their debt,” IMF officials said. “We may see economic collapse in some countries unless G20 creditors agree to accelerate debt restructuring and suspend debt service while the restructuring is negotiated.”
According to the World Bank, the Covid-19 virus has dealt a major blow to the world’s poorest countries, causing a recession that could push more than 100 million people into extreme poverty. Challenges escalate with the discovery of an omicron variant, which is driving a new wave of infection.
Afghanistan and Ethiopia are among 30 countries at high risk of systemic debt distress, while Grenada, Mozambique, Republic of Congo, Sao Tome and Principe and Somalia are already suffering, according to the World Bank’s website.
The G20 debt plan, which went into effect on May 1, 2020, has so far provided more than $10.3 billion in forgiveness for more than 40 eligible countries.
Georgieva and Pazarbasioglu called for the “intensification” of the so-called G-20 Joint Framework – a plan to reorganize loans – to help poor countries. The strategy has suffered from delays and lack of interest from debtor countries since its inception in November 2020. Only three of the 73 eligible countries – Chad, Ethiopia and Zambia – have applied for the programme.
International Monetary Fund officials said that the expiration of the debt service forgiveness period will force “participating countries to resume debt service payments.” “Swift action is needed to build confidence in the framework and provide a roadmap to assist other countries facing increasing debt vulnerabilities.”
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