Estimated reading time: 8 minute(s)
Sodiq Mojibola
The World Bank and the International Monetary Fund (IMF) are set to present concrete proposals to address the mounting debt problems faced by poor countries.
According to World Bank President, David Malpass, the proposals will be presented at the ongoing Spring Meetings.
In a blog post on Sunday, Malpass stated that the proposals would be introduced at the Global Sovereign Debt Roundtable, a meeting led by the Bretton Woods institutions and Group of 20 chair India in Washington.
Malpass highlighted two areas where he sees the potential for a breakthrough in resolving the debt crisis.
The first is suspending debt-service payments at the beginning of the process, which would provide incentives for reaching a deal and protect the countries’ ability to repay their debts.
The second is the more frequent use of a rarely invoked policy called lending into arrears by the IMF, which allows the IMF to lend into arrears if it deems prompt help is essential.
However, the IMF also requires the debtor country to pursue appropriate policies and make good-faith efforts to reach an agreement with creditors, to prevent a single creditor from blocking IMF lending.
China, the largest sovereign creditor to developing nations, has raised questions about the assumptions made by the institutions, which has slowed down the process.
Malpass emphasized the urgency of the situation, stating, “With the debt crisis growing larger, we must approach the meetings in the week ahead with resolve and urgency. Now is the time for all parties to turn words into action.”
The debt crisis has reached a critical level, with more than half of the world’s low-income countries at high risk of debt distress or already in default.
“Right now, the debt overhang is just paralysing some of the countries,” Malpass said on the Monday call.
More than half of the world’s low-income countries are at high risk of debt distress or already in it, and several have defaulted.
Also speaking at a joint seminar on “The way Forward: Building Resilient” yesterday at ongoing the IMF/World Bank Spring meeting in Washington DC, Malpass, and the Managing Director of IMF, Kristalina Georgieva, said part of the discussion with the convoy of low-income countries and emerging markets would be to create short-term targeted financing to Small- and Medium-Sized Enterprises (SMEs) to enhance inclusive growth amidst tacking inflation with high-interest rates.
The IMF president said: “Central banks do have a preoccupation to bring inflation down and it is paramount because, without price stability, there is no sound foundation for investments and for growth.
“Their job has become more complicated because of the exposure to vulnerabilities in the financial sector. That means attention has to be paid to financial stability. Fortunately, they have different tools they can apply to deal with these two different problems.
“They can fight inflation by keeping interest rates higher for longer and they can provide targeted liquidity should there be a need to bring down risks to financial stability.”
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