IMF Chief cites SL at G20 meeting to drive home point of high debt-triggered crises

Monday, 18 July 2022 00:23 - - {{hitsCtrl.values.hits}}

IMF Managing Director Kristalina Georgieva

International Monetary Fund (IMF) Managing Director Kristalina Georgieva on Saturday cited Sri Lanka at a G20 forum in Bali, Indonesia to drive home the point of high debt-triggered crises globally.

“Countries with high debt levels and limited policy space will face additional strains. Look no further than Sri Lanka as a warning sign,” said Georgieva, speaking at the G20 Finance Ministers and Central Bank Governors hybrid meeting.

Calling for strong global leadership, she said debt has reached multi year highs. Over 30% of emerging and developing countries are at or near debt distress. For low-income countries that number is 60%. “With tightening financial conditions and exchange rate depreciations, the debt service burden is a harsh – and for some countries – unbearable burden,” she added.

The IMF Chief also said the global economic outlook has darkened significantly, and uncertainty is exceptionally high. Downside risks about which the IMF had previously warned have now materialised.

She said the war in Ukraine has intensified, exerting added pressures on commodity and food prices. Global financial conditions are tightening more than previously anticipated. And continuing pandemic-related disruptions and renewed bottlenecks in global supply chains are weighing on economic activity.

Georgieva said the IMF later this month will project a further downgrade to global growth for both 2022 and 2023 in its World Economic Outlook Update.

“Moreover, downside risks will remain and could deepen – especially if inflation is more persistent – requiring even stronger policy interventions which could potentially impact growth and exacerbate spillovers particularly to emerging and developing countries. Countries with high debt levels and limited policy space will face additional strains. Look no further than Sri Lanka as a warning sign,” IMF Chief said.

It was also emphasised that emerging and developing countries have also been experiencing sustained capital outflows for four months in a row. They now suffer the risk of reversing three decades of catching up with advanced economies and instead falling further behind.

She shared three priorities as to how the world can navigate this extraordinarily challenging environment.

First, these countries must do everything in their power to bring inflation down, adding “Failure to do so could risk the recovery and further damage living standards for vulnerable people.”

Second, she said fiscal policy must help – not hinder – central bank efforts to tame inflation. This is a complex task. Third, a fresh impetus for global cooperation will be critical to confront the multiple crises the world is facing, particularly the risks from food insecurity and high debt.