The International Monetary Fund has warned of an “economic collapse” in some low-income countries unless the creditors of the world’s richest nations suspend debt payment obligations and help to renegotiate new terms.
About 60% of the world’s poorest countries are at high risk for or already suffering from distressed debt, double the number in 2015, said Kristalina Georgieva, the IMF’s managing director, and Ceyla Pazarbasioglu, the department’s director. of Strategy, Policies and Evaluation of the Fund, in a blog post.
As the Group of 20 Debt Service Suspension Initiative (DSSI) expires at the end of the year and interest rates are poised to rise, “low-income countries will increasingly have more difficulties to pay their debts ”, said the authorities of the IMF.
“We may see an economic collapse in some countries unless G20 creditors agree to accelerate debt restructurings and suspend debt service while restructurings are negotiated,” they added.
COVID-19 has had a strong impact on the world’s poorest countries, causing a recession that could drive more than 100 million people into extreme poverty, according to the World Bank. The challenges are increasing with the discovery of the omicron variant, which is fueling a new wave of infections.
DSSI, which took effect on May 1, 2020, has so far provided more than $ 10.3 billion in aid to more than 40 eligible countries.
Georgieva and Pazarbasioglu called for the so-called G20 common framework – a plan to reorganize loans – to be “stepped up” with the aim of helping the poorest nations. The strategy has been plagued with delays and lack of interest from debtor countries since its inception in November 2020. Only three of the 73 eligible countries (Chad, Ethiopia and Zambia) have applied to the program.
Afghanistan, Bangladesh and Honduras are among the nations at high risk of distressed debt, while Grenada, Somalia and Mozambique are already experiencing it, according to the World Bank website.
The expiration of the DSSI will force “participating countries to resume debt service payments,” the IMF officials said. “Quick action is needed to build confidence in the framework and provide a roadmap to help other countries facing increasing debt vulnerability.”
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