Multiple economic shocks in recent years, amid a slow rise in per capita income in more than three decades, have put developing economies in real danger if urgent steps are not taken, the managing director of International Monetary Fund (IMF), Kristalina Georgieva, has warned.
Speaking at the start of a session on concessional finance at the ongoing Spring Meetings of the World Bank and IMF, holding in Washington DC, Georgieva said the world has to work together to close the existing gap.
She hinted that since the outbreak of the COVID-19 pandemic, the IMF has provided $24 billion in support through the Poverty, Reduction and Growth Trust (PRGT) alleviating the suffering of the people with low-income and preventing instability from spreading beyond borders.
The IMF chief, however, was quick to add that higher interest rates have raised the cost of borrowing and increased the funding shortfall.
“We have to work together to close this gap and I have no doubt that we will be successful,” Georgieva said, adding that every dollar committed in PRGT subsidies translates into $5 of interest-free lending.
As a first step forward, she solicited bridging the subsidy gap by providing pledges of $1.6 billion, saying $4.7 billion is needed to close the gap in the credit market.
She observed that higher interest rates make bringing down the cost of lending to low-income countries harder, adding that as a result, the resource gap for the PRGT has grown.
“What this means is that by October, by closing this gap, we can restore access to concessional financing for PRGT-eligible countries at par with access for our GRA-eligible countries.
That is meaningful on its own from a financial standpoint. It is also meaningful in terms of equality of treatment and the sense that we are one community – all our members,” she stated.
The IMF boss stressed the need for consensus building and a burden-shared strategy to replenish the PRGT so it can provide adequate support to the low-income members for the longer term.
“So, I suggest that we launch this road to Marrakesh today. To help us see how we travel this road, we asked two leaders to provide us with some thoughts around what it means and why it matters,” Georgieva added.
Also, the IMF’s First Deputy Managing Director, Gita Gopinath, revealed that nearly 15 per cent of low-income countries are in debt distress and 25 per cent of emerging market economies are borrowing on extremely expensive terms, deepening global risks in a high-inflation, high-interest rate environment.
Good policies and strong institutions are critical to avoid debt distress and IMF capacity development aims to equip countries with tools for better debt management and transparency.
“You can’t talk about good financial management unless you have a good sense of exactly how much debt your countries have,” said Gopinath.