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IMF, WB cite Sri Lanka as case study for tackling rising debt
View(s):Sri Lanka’s debt crisis, among other global topics, figured prominently at this week’s spring meetings of the International Monetary Fund (IMF) and the World Bank which discussed the growing debt problem of countries in the post-pandemic era.
It was revealed that Sri Lanka waited too long to resolve its debt crisis.
While Sri Lankan negotiators held extensive meetings with the world’s multinational fund agencies in Washington DC seeking help to resolve the country’s huge debt problem — on the sidelines of their spring meetings –, the conferences’ themselves drew experience from Sri Lanka’s case as a need to tackle rising debt in poorer countries.
On Wednesday, World Bank President David Malpass said the debt crisis itself was a topic of extensive conversation this week, both at the IMF, at the World Bank meetings. “It’s vital and we know what the data show: a huge buildup of debt, especially in the poorest countries. It’s important that the resolution process starts early. If you wait, the resolutions are much more difficult to carry out. Sri Lanka is facing that problem now,” Mr. Malpass told reporters.
The heads of the IMF and the World Bank warned that rising interest rates were squeezing the world’s poorest countries as they struggled with the coronavirus and soaring food prices.
There is “a huge buildup of debt, especially in the poorest countries,” said Mr. Malpass. “As interest rates rise, the debt pressures are mounting on developing countries, and we need to move urgently towards solutions.”
It was revealed at this week’s IMF/World Bank meetings that Zambia has become the first pandemic-era default in 2020 and is buckling under a debt burden of almost $32 billion, around 120% of its GDP.
Sri Lanka could come a close second with debt payments totaling over $31 billion between 2021 (already paid) and 2026. This includes International Sovereign Bonds (ISBs), Sri Lanka Development Bonds and bilateral loans, according to a report by Fitch Ratings. The country has already declared a ‘near bankruptcy’ status, last week announcing a temporary freeze on all foreign debt payments until a debt restructuring plan is set in motion.
In their meetings, Sri Lankan negotiators led by Finance Minister Ali Sabry were told that any IMF funding would have to wait until a viable debt restructuring plan was presented. In the meantime, Sri Lanka has been negotiating with India, China and other donor agencies for funds to support much needed imports like fuel, gas, medicines and fertiliser.
According to a Bloomberg report, Mr. Malpass called for a new process for restructuring debt burdens for developing nations amid concerns about a lack of transparency over how much they owe to China.
“The world needs to have a resolution process for debt that’s more robust than we have right now and starts earlier,” he said. “There really needs to be a change,” he said, adding: “The world was set up under the old debt composition, where China wasn’t a big player.”
“It’s not all transparent as far as what the amounts are” that are owed to China, Mr. Malpass said.
IMF Managing Director Kristalina Georgieva said that 60 percent of low-income countries were in or near “debt distress” — an alarming threshold reached when their debt payments equal half the size of their national economies.
The IMF forecasts that government debts in low-income countries will surpass 50 percent of gross domestic product — the broadest measure of economic output — this year, up from less than 44 percent in the pre-pandemic year 2019.
| IMF to support efforts to end the crisis The International Monetary Fund (IMF) said last night that it would support Sri Lanka’s efforts to overcome the current economic crisis by working closely with the authorities on the country’s economic programme, and by engaging with other stakeholders in support of a timely resolution of the crisis. In a statement, the IMF said discussions with the Sri Lankan delegation covered recent economic and financial developments in Sri Lanka, the need for implementing a credible and coherent strategy to restore macroeconomic stability, and the importance of stronger social safety nets to mitigate the adverse impact of the current economic crisis on the poor and vulnerable. The IMF said its team welcomed the authorities’ plan to engage in a collaborative dialogue with their creditors. | |
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