Soaring prices putting poor countries at risk of default: IMF | Business and Economy

The international financial institution said better mechanisms are needed to deal with government debt stress.

Significantly higher global food and energy prices due to war in Ukraine The International Monetary Fund (IMF) said on Monday that better mechanisms to deal with government debt stress would be needed to prevent defaults.

“The war in Ukraine is adding to the risks with unprecedented levels of public debt while the pandemic is still straining many government budgets,” said Vitor Gaspar, IMF finance director, and Ceyla Pazarbasioglu , the organization’s chief strategy officer, writes in a new newspaper Blog.

“With government debt risks rising and financial constraints back at the center of policy concerns, a collaborative global approach is needed to achieve an orderly resolution of the issues.” debt problems and prevent unnecessary defaults.”

Food and energy price increases are particularly strong for low-income countries, and they may need additional subsidies and highly concessional funding. Countries need to undertake reforms to improve debt transparency and strengthen debt management policies to reduce risk.

About 60% of low-income countries are already in or at risk of falling into poverty, the authors say. Rising interest rates in the top economies could lead to exchange rate differentials for countries with weaker fundamentals, making it more expensive for them to borrow.

The credit crisis was exacerbated by a decline in offshore lending from China, which is already facing solvency concerns in the real estate sector, the COVID-19 lockdown and other problems. problems with existing loans to developing countries, they said.

They say the actions of the major economies have not been enough, noting that the official bilateral debt payments freeze adopted at the start of the pandemic has ended and there is no restructuring. agreed within the framework of the Group of 20 industrialized countries.

Options are needed for more countries, which are not yet eligible for forgiveness.

The dislocation will increase costs and risks for debtors, creditors and, more broadly, global stability and prosperity, they write. “Ultimately, the impact will be most clearly felt by households that can afford it the least.”

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