The International Monetary Fund (IMF), one of the global multilateral finance institutions, has reported that about 15% of low-income countries (LICs) are trapped in debt distress while 45% of the population faces high risks of indebtedness as rising restrictions continue to constrain global economies.
The development finance institution made this projection in a new report titled ‘Confronting Fragmentation Where it Matters Most: Trade, Debt, and Climate Action’, and described debt as a major challenge in many countries.
The report stated: “About 15 percent of low-income countries are already in debt distress and an additional 45 percent are at high risk of debt distress. Among emerging markets, about 25 percent are at high risk and facing default-like borrowing spreads.”
According to the IMF, even as most countries are facing the debt crisis, fragmentation will make it more difficult to frontally tackle the LICs’ sovereign debt crises, particularly if the creditors are polarized along geopolitical lines.
While noting that about 25% of the countries are at high risk and facing default-like borrowing spreads among emerging markets, the Washington D-C based finance institution reported that there were signs of progress on the Group of Twenty’s Common Framework for debt treatment.
For instance, it recalled that while Chad recently sealed a pact with its official and private creditors, Zambia was progressing toward a debt restructuring while Ghana also reportedly became the fourth country to seek treatment under the Common Framework.
The IMF also pointed out that debt restructuring may appear a desirable fiscal option for indebted countries but stressed that countries seeking debt restructuring under the Common Framework would need greater certainty on processes and standards, as well as shorter and more predictable timelines.
Its report’s findings further indicated that to support the debt management improvements for countries not covered by the framework, the IMF, World Bank and Indian G20 presidency were working with borrowers and public and private creditors to quickly establish a global sovereign debt roundtable, where all stakeholders can discuss current shortcomings and agree on how best to address them.
The IMF clarified: “These and other pragmatic actions, such as further progress on majority voting provisions in sovereign loans and climate resilient debt clauses, can help improve debt resolution. That would reduce economic and financial uncertainty while helping countries get back to investing in their future.”
