News Excerpt:

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

More about the news:

• Multiple reports from the IMF and the World Bank have sounded the alarm about economic developments and prospects in low-income developing countries.
  • These countries are still grappling with the aftermath of the COVID-19 pandemic and other shocks.
• 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. 
• In a separate report, 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.                                                                                                                                                                               
  
• Almost 40 countries saw external public debt outflows in 2022, and the flows likely worsened in 2023.

Recent steps by the IMF to support low-income countries:

• The IMF was working to reinforce its ability to support low-income countries hit hardest by recent shocks, through a 50% quota share increase and by adding resources to its Poverty Reduction and Growth Trust (PRGT).
• Internal reforms adopted by the IMF should help make the debt restructuring process speedier and smoother.

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.
• In some countries, debt payments are up to 20% of revenues which leaves those countries with far fewer resources to invest in education, health, infrastructure and jobs. 
• Affected countries need to increase their domestic revenues by raising taxes, continuing to fight inflation, paring back spending and developing local capital markets.
• These countries need to make themselves more attractive to investors.