The heads of the World Bank and the International Monetary Fund sounded the alarm about record global debt levels on Thursday, with the IMF chief saying that the Fund has $700 billion more available to deploy to step up support to member countries “facing a crisis upon a crisis.”
“We see the problem for many countries getting worse and the tools to deal with this problem are disappearing,” Kristalina Georgieva, the IMF chief, said in an online discussion with World Bank President David Malpass.
The IMF, which has already deployed $300 billion out of the $1 trillion it pledged last year to help global economies during the pandemic, is stepping up to help member countries on all the fronts — “with our policy advice and capacity development,” said Georgieva.
“On top of that is the $650 billion in SDRs allocated last summer,” she said, while addressing the Annual Spring Meeting of the IMF and World Bank.
“We meet at a consequential moment for the world—facing a crisis upon a crisis. The war on top of the pandemic. It is like being hit by another storm before we have recovered from the last one. The result is a massive setback for the global recovery. We have reduced our global growth forecast to 3.6 per cent for both this year and 2023— with downgrades for 143 countries,” said the IMF head.
She said the setback in growth is caused largely by Russia’s invasion of Ukraine and the shock waves it has sent around the world.
“First and foremost, of course, is the dreadful human suffering it has caused for the Ukrainian people. Our hearts go out to them. Another consequence is accelerating inflation, which has become a clear and present danger for many countries—rising food and fuel prices are straining the budgets of ordinary families to the breaking point.”
Georgieva said financial tightening, high debt, and frequent, wide-ranging lockdowns in China — causing further bottlenecks in global supply chains — are additional dark clouds weighing on the global economy.
“And I see one more hanging overhead: the risk of geopolitical fragmentation, which could jeopardize the development gains of the last 75 years—and leave us unable to address other urgent global challenges, such as climate change,” she said, adding the immediate hope must be for the Ukraine war to end—that would have the single most positive effect on the global recovery right now.
“In the meantime, we must do everything we can to help Ukraine and other heavily affected countries.”
The IMF has already provided $1.4 billion in emergency financing to Ukraine, and set up a special account through which others can securely contribute.
“At the same time, we must continue to fight Covid — the pandemic has not gone away.”
According to IMF analysts, global deficits and debt are falling from record levels, but the risks around the outlook are exceptionally high and vulnerabilities are rising. Global public debt is expected to fall in 2022 and then stabilize at about 95 per cent of gross domestic product over the medium term, 11 percentage points higher than before the pandemic.
On rising global debt levels, she said options to deal with the billions owed by poor nations are disappearing.
“The debt problem is knocking on the door louder and louder.”
Both the World Bank and the IMF have for months flagged risks from rising debt levels in emerging markets, particularly as interest rates start to increase to cool accelerating inflation. The World Bank estimates that the poorest countries — whose fragile economies have been decimated by the pandemic — owe $35 billion in payments in 2022.
Malpass called for a new process for restructuring debt burdens for developing nations amid concerns about a lack of transparency over how much they owe to China. “The world needs to have a resolution process for debt that’s more robust than we have right now and starts earlier,” Malpass said. “There really needs to be a change,” he said.
“The world was set up under the old debt composition, where China wasn’t a big player,” he said.
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