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Global lenders seek debt relief for poorest countries

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Via Financial Times

The IMF and World Bank have called on governments to offer immediate debt relief to the world’s poorest countries to help them tackle the coronavirus outbreak.

“These are difficult times for all, especially for the poorest and most vulnerable,” said David Malpass, president of the World Bank. “Our first goal is to provide prompt support during the crisis, based on a country’s needs.”

Campaigners say the pandemic will put unsustainable pressure on governments with public finances already under stress and with health systems ill-prepared for the crisis.

The IMF and World Bank have been warning for some time of the build-up of unsustainable debts in the poorest countries. Many are now under intense pressure as the global scramble for dollars drives down the value of their currencies, making it harder to finance dollar-denominated debts. Some have also been hit by the big falls in commodity prices and by the slump in global tourism.

Countries receiving bilateral development assistance are due to make repayments of about $40bn to public and private creditors this year. The IMF and World Bank are calling for relief on country-to-country loans, which represent about £18bn of this total.

The remainder is owed to multilateral institutions and external private creditors according to estimates by Jubilee Debt Campaign, a charity. Tim Jones, head of policy at Jubilee Debt Campaign, said a moratorium on all debt payments was “urgently needed”.

In a joint statement, the IMF and World Bank called on all official bilateral creditors to suspend debt repayments at once, if asked for forbearance by countries that qualify for the World Bank’s concessional lending programme.

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This is a group of 76 countries, most of them small economies with very low per capita income, but also including larger countries such as Nigeria and Pakistan. They account for a quarter of the world’s population and two-thirds of those living in extreme poverty.

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Most have health systems that are ill-equipped to cope with the rapid spread of the virus. Kristalina Georgieva, the IMF’s managing director, said last week that the IMF could channel $10bn of emergency financing to the poorest countries — with a further $40bn available for middle-income emerging economies. The priority was to boost frontline health spending to care for those affected by the virus and stop its spread, but she also underlined the need to soften the economic blow.

Mr Malpass said this week that the multilateral lender was ready to front-load lending of up to $35bn to these countries, and find additional resources to help them cope with the pandemic, but could not see the money go to repay creditors

The IMF said this week that almost 80 countries had already approached it for assistance.

The IMF and World Bank said it was “imperative . . . to provide a global sense of relief for developing countries as well as a strong signal to financial markets”.

The suspension of debt payments would release funds for countries to spend immediately on shoring up health systems. It would also give the IMF and World Bank time to assess the impact of the crisis on each country, identify those in need of debt relief, and put forward a proposal for financial aid and debt relief at the annual spring meetings in April, they said.

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