Queen Nwabueze
The International Monetary Fund’s First Deputy Managing Director, Gita Gopinath has announced that about 60% of low-income countries are at high risk of or already in debt distress, and about 20 emerging markets have debt that’s trading at distressed levels.
The IMF’s deputy chief then said, more countries are likely to seek debt relief as a stronger dollar makes repayments tougher, and the program that rich nations have to help poorer ones needs to be faster and broader.
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“We will likely see more countries needing debt relief,” she said.
Surging prices have unleashed a series of interest-rate increases worldwide by central banks, led by the Federal Reserve’s aggressive moves, which has supercharged the dollar. Meanwhile, developing nations have amassed a quarter-trillion dollar pile of distressed debt that threatens to create a historic cascade of defaults.
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“Depreciation of emerging-market currencies relative to the dollar has inflationary consequences,” Gopinath said. “That’s making monetary policy for them much more challenging at this time and there are countries that have borrowed in dollars, this makes it difficult for them to repay. “
The worsening debt burden comes after the expiration in December of the so-called Common Framework adopted by the Group of 20 to suspend or revamp debt repayments by low-income countries during the Covid-19 pandemic. The framework incorporates the Paris Club of mostly rich creditor countries as well as China, which isn’t a member, but is the world’s biggest official bilateral lender.
“A lot more speedy action is needed, and the scope of the framework has to be expanded to middle-income countries,” Gopinath said.
The International Monetary Fund is an agency of the United Nations, and an international financial institution, headquartered in Washington, D.C., consisting of 190 countries.
