MF, WBG urge addressing low, middle-income countries' debt challenges
10/18/2020 3:26:07 PM
The World Bank Group (WBG) and the International Monetary Fund (IMF) should continue to review the debt challenges of low-income countries and propose actions to address their fiscal and debt stress on a case-by-case basis, in addition to reviewing debt challenges of middle-income countries and exploring customised solutions to their fiscal and debt stress, including by providing additional resources in these challenging times, in line with the capital package commitments, said the Board of Governors of the IMF and WBG.

The call came during the meeting of the joint ministerial committee of the Board of Governors of the IMF and WBG, held virtually on Friday as part of the IMF and WBG annual meetings, on the transfer of real resources to developing countries.

In the restructuring and recovery stages of the COVID-19 response, the committee urged the WBG and IMF to help countries rebuild better, focus on promoting the building blocks for an inclusive and sustainable recovery, ensure affordable energy access and energy security, and address the challenges to economic and environmental vulnerabilities, including climate change.

To accelerate a resilient recovery focused on jobs and economic transformation, the committee asked the WBG to provide the knowledge, policy advice, and financial support to help countries strengthen social safety nets and facilitate the movement of capital and labour towards sectors that will be productive and sustainable in the post-pandemic context, while also providing the innovation needed to open up trade finance for small and medium-sized enterprises (SMEs) and confront the challenges of informality.

It also urged the WBG to support the mobilisation and crowding of private capital and finance through its International Finance Corporation (IFC) and its Multilateral Investment Guarantee Agency (MIGA) to create markets and promote investments and quality infrastructure for a broad-based recovery and long-term development.

The committee asserted the importance of increasing domestic resource mobilisation in a manner that promotes fairness, equity, and inclusive growth, including by phasing out fuel subsidies and other distortive subsidies and taxes where feasible.

Moreover, the committee called on all countries to support the availability of medical and food supplies that developing countries depend on to avoid the risk of a wider health crisis, famine and hunger.

For the G20’s debt service suspension initiative (DSSI), the committee announced supporting the extension of the initiative for six months and advised examining, by the time of the 2021 WBG and IMF spring meeting, if the economic and financial situation requires further extension of the DSSI for another six months, with targeted complements to the April 2020 DSSI term sheet.

In this regard, the committee urged the private creditors to participate on comparable terms when requested by eligible countries.

“DSSI is creating much needed fiscal space and supporting the financing programmes of the WBG and IMF for the poorest countries. While protecting their current ratings and low cost of funding, we encourage MDBs to go further in their collective efforts in supporting the DSSI, including through providing net positive flows to DSSI-eligible countries during the suspension period, including the extension period,” the committee said in a statement.

It called on the WBG and IMF to continue supporting DSSI implementation through providing further details on the net new resources they are providing to each eligible country and to continue their work to strengthen quality and consistency of debt data and improve debt disclosure.

“Amid high public debt levels, shrinking economies, and rising fiscal pressures, we recognise that debt treatments beyond the DSSI may be required on a case-by-case basis. In this context, we welcome the G20’s agreement in principle on a 'Common Framework for Debt Treatments beyond the DSSI,' which is also agreed by the Paris Club. We look forward to the endorsement of the Common Framework by members, subject to their domestic approval procedures,” read the statement.

The committee also called on the IMF and WBG to continue working with member countries, the public and private sectors, local and bilateral development partners, and international organisations, including the UN, to counter the pandemic, stressing that the coronavirus crisis has resulted in the largest global economic contraction in the last eight decades.

The next meeting of the committee is scheduled for 10 April 2021 in Washington.