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IMF Warns Of ‘Economic Collapse’, Urges Advanced G20 Countries To Extend Debt Relief

The G20 Debt Service Suspension Initiative (DSSI) expires on the finish of the yr

The IMF on Thursday urged superior economies within the G20 to increase and enhance their debt aid initiative, warning that many international locations face a dire disaster with out the assistance.

“We may see economic collapse in some countries unless G20 creditors agree to accelerate debt restructurings and suspend debt service while the restructurings are being negotiated,” IMF chief Kristalina Georgieva stated in a weblog, including that it’s essential personal collectors additionally provide aid.

The G20 Debt Service Suspension Initiative (DSSI) expires on the finish of the yr, and with no renewal, international locations would face monetary strain and spending cuts simply as new Covid-19 variants are spreading and rates of interest are anticipated to rise, she stated.

“Debt challenges are pressing and the need for action is urgent. The recent Omicron variant is a stark reminder that the pandemic will be with us for a while,” Georgieva stated within the weblog co-authored by Ceyla Pazarbasioglu, director of the fund’s Strategy, Policy, and Review Department.

Georgieva didn’t specify which economies confronted a disaster, however referred merely to “low-income countries.”

Advanced economies within the Group of 20 introduced this system final yr amid the Covid-19 pandemic, which hit poor international locations the toughest, hampering the flexibility of these governments to service their debt and assist their folks. 

The G20 twice prolonged the DSSI, however the IMF and World Bank have been urging collectors to do extra to assist with the burgeoning debt load. There are 73 international locations eligible for aid beneath this system.

Debt misery

The World Bank estimates that debt hundreds in poor international locations surged 12 p.c to a report $860 billion in 2020 amid the pandemic, and Georgieva stated “about 60 percent of low-income countries are at high risk or already in debt distress.”

Given the issues with the debt aid program and the frequent framework for coping with personal collectors, solely three international locations to date have utilized for aid — Chad, Ethiopia and Zambia — and so they have confronted “significant delays.”

The framework has “yet to deliver on its promise. This requires prompt action,” she stated. She famous that Chad’s program is hung up because of the must restructure a big quantity owed to a non-public firm.

And with inflation surging in main economies, central banks are pulling again on stimulus and anticipated to start elevating rates of interest subsequent yr, which might enhance debt service prices for poor nations and certain would see capital flee these international locations.

“No doubt 2022 will be much more challenging with the tightening of international financial conditions on the horizon,” Georgieva stated.

The IMF is asking for enhancements in this system, particularly mechanisms to oblige personal collectors to take part, which might encourage extra poor international locations to utilize the DSSI.

In addition, “a comprehensive and sustained debt service payment standstill for the duration of the negotiation would provide relief to the debtor at a time when it is under stress,” she stated.

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