Debt, fiscal challenges facing low-income countries worry IMF

Subject: IR

Sec: world history

Context:

Shareholders of the International Monetary Fund agreed on the importance of addressing challenges faced by low-income countries, many of which are facing unsustainable debt burdens.

More on news:

IMF chief Kristalina Georgieva said that the body is working on ways to support low-income countries hit hardest by high debt levels.
The IMF lowered its 2024 growth forecast for low-income countries as a group to 4.7% from an estimate of 4.9% in January.
The World Bank said half of the world’s 75 poorest countries were experiencing a widening income gap with the wealthiest economies for the first time this century in a historical reversal of development.
The IMF was working to reinforce its ability to support low-income countries hit hardest by recent shocks, including through a 50% quota share increase and by adding resources to its Poverty Reduction and Growth Trust.

Impact of high debt levels on low-income countries:

High debt levels posed a huge burden for low-income countries, including many in Sub-Saharan Africa, where countries face debt service payments of 12% on average, compared to 5% a decade ago.
High interest rates in advanced economies have lured away investments, and raised the cost of borrowing.
Some countries’ debt payments are up to 20% of revenues.
Affected countries needed to increase their domestic revenues by raising taxes, continuing to fight inflation, paring back spending and developing local capital markets.
Concerns were raised about the situation facing low-income countries last week, warning China and other emerging official creditors against free-riding by curtailing loans to low-income countries just as the IMF or multilateral development banks were pouring funds in.
Almost 40 countries saw external public debt outflows in 2022, and the flows likely worsened in 2023.