IMF pushing for effective solution for distressed debt

• New guidelines to bring equality of treatment for all creditors
• Expand greater donor coordination to middle-income countries like SL
• IMF Chief says over 60% of low-income countries are at or near debt distress and across many economies, recession risks are rising
• Since the COVID pandemic began, IMF has provided $ 260 b in financial support to 93 countries

The International Monetary Fund (IMF) on Thursday said it is pressing for a more effective debt resolution mechanism for distressed countries including Sri Lanka.

“We want the Common Framework to become more predictable with guidelines and able to bring equality of treatment for all creditors, public and private. And we are also looking for ways in which we can expand that kind of donor coordination to middle-income countries, such as Sri Lanka,” IMF Managing Director Kristalina Georgieva said at a briefing to journalists at the on-going IMF-World Bank Annual Meetings in Washington, D,C.

A Sri Lankan delegation led by State Finance Minister Shehan Semasinghe and comprising Treasury Secretary Mahinda Siriwardena and Central Bank Governor Dr. Nandalal Weerasinghe is also in attendance at the annual meetings.

Emphasis on global distressed debt (over 60% of low income countries are at or near debt distress) was during her opening remarks at the briefing in which Georgieva highlighted growing risks for the global economy.

The IMF earlier this week cut its growth forecast for 2023 to 2.7%. Georgieva said across many economies, recession risks are rising. And even when growth remains positive, for hundreds of millions of people, it would feel like a recession because of rising prices and shrinking incomes. On top of it, risks to financial stability are also growing.

Noting that uncertainty remains exceptionally high, she said the IMF World Economic Outlook shows a one in four chance, in other words, 25% chance that global growth could drop to a historic low of 2% next year. 

“These repeated shocks we have experienced, the growth setbacks, raise a bigger question. Are we experiencing a fundamental shift in the world economy from relative predictability and stability to greater uncertainty and volatility? And what does it mean for policymakers? Clearly a much more complex time. 

It is tough for everybody, but it is even tougher for countries that are now being hit by a stronger dollar, high borrowing costs, capital outflows, a triple blow that is particularly heavy for countries that are under a high-level of debt: IMF Managing Director Kristalina Georgieva

“And that requires steady hands on the policy levers. And this is what our Global Policy Agenda we release today calls for. The price of policy missteps, the price of poor communication of policy intentions is very high,” IMF Chief emphasised.

Apart from distressed and high debt, the IMF Chief listed among other concerns as rising inflation and interest rates, the need for responsible fiscal policies and protecting the most vulnerable sections of the population, food security, climate change and financial stability.

In this environment, Georgieva stressed the need to support vulnerable emerging markets and developing countries. “It is tough for everybody, but it is even tougher for countries that are now being hit by a stronger dollar, high borrowing costs, capital outflows, a triple blow that is particularly heavy for countries that are under a high level of debt,” she said.

According to her, the IMF is working with our 190 members on many of these issues. “Our economic analysis is front and centre to help countries navigate this complex environment and avoid policy mistakes. Our lending is aligned with our countercyclical role,” she added.

Since the pandemic began, IMF has provided financial support to 93 countries, some $ 260 billion and post Russian invasion in February, it has supported 18 new programs. “These are new programs and augmentation of existing programs with close to $ 90 billion. And we now have additional 28 requests for support from the Fund. And that comes on top of the $ 650 billion SDR allocation,” she said, adding the IMF has  an ambition of $1 00 billion on lending of SDRs for countries in strong positions. 

“We have created our first ever long-term financing instrument to support the transformation of economies, the Resilience and Sustainability Trust. It is now operational. We have pledges of $ 40 billion and we have Staff-Level Agreements for the first three countries crossing the finish line, Barbados, Costa Rica, and Rwanda. 

“For countries suffering from the food crisis, we have expeditiously opened up a window in emergency financing, the Food Shock Window, to provide rapid financing to urgent needs,” the IMF Managing Director said at the media briefing.