The Time Is Now: We Must Step Up Support For the Poorest Countries

IMF Blog, March 31, 2023

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Low-income countries face huge economic challenges and financing needs and rely on international institutions, including the IMF’s Poverty Reduction and Growth Trust (PRGT), for vital policy and financial support.
Economically stronger countries have a responsibility to contribute to the funding of this support.
The IMF-World Bank Spring Meetings are highlighted as an occasion when finance ministers and central bankers should prioritize the needs of the world’s poorest nations.

Since the pandemic, the IMF has supported more than 50 low-income countries with some $24 billion in interest-free loans via the PRGT.
The PRGT provides interest-free loans to support well-designed economic programs, catalyze additional financing from donors, development institutions, and the private sector, create the environment for successful debt resolution, and provide rapid emergency support when shocks hit.
At the onset of COVID, the IMF rapidly scaled up emergency financing and program support through the PRGT, with new commitments reaching almost $9 billion (6.5 billion special drawing rights) in 2020 alone.
Demand for PRGT lending is projected to reach nearly $40 billion (SDR 30 billion) in 2020-24, more than four times the historical average.

The IMF estimates low-income countries’ additional financing needs—to accelerate growth and put them back on a path to income convergence with advanced economies—to be about $440 billion over the five years through 2026.
The 2021 reforms to the PRGT identified a need to raise about $16.9 billion (SDR 12.6 billion) in loan resources and $3.1 billion (SDR 2.3 billion) in subsidy resources.
So far, pledges amount to around three-quarters of the target for loan resources but less than half that for subsidy resources.
PRGT subsidy resource needs have since risen further on account of record demand for Fund support and sharply higher interest rates.
Additional pledges are urgently needed to meet the agreed fundraising target by the time of this October’s Annual Meetings in Morocco—the first meetings to be held in Africa for 50 years.

A failure to secure these resources would jeopardize the IMF’s ability to provide much-needed support to low-income countries as they seek to stabilize their economies in an increasingly shock-prone world.
Without urgent action and more support, low-income countries face little chance of making up lost ground on income convergence; per capita income growth is falling further behind the rates needed to catch up with advanced economies.

About 15 percent of low-income countries are already in debt distress and another 45 percent face high debt vulnerabilities.
Rising international interest rates increase risks and restrict fiscal space.
Changes to the creditor landscape and greater creditor diversity make debt restructuring more difficult; coordination mechanisms are largely imperfect.
Geopolitical fragmentation is making it harder to forge international consensus on common-interest areas, including debt.
Accelerating implementation of the Group of Twenty Common Framework for debt treatment is essential to ensure coordination and confidence among creditors and debtors.
Early lessons from the successful case of Chad could be applied to Ghana and Zambia to speed up progress.
The Global Sovereign Debt Roundtable, initiated in February by the IMF, World Bank and India (as president of the G20), holds the potential to reach greater consensus among key stakeholders; further progress is sought when all roundtable participants—creditors and debtors—sit down together on April 12, during the Spring Meetings.

Replenish and subsidize the PRGT to ensure continued provision of interest-free financing to low-income countries.
Donor countries should pool resources and fund the IMF, World Bank and other multilateral agencies, as well as maintain or increase bilateral development programs.
Mobilize additional pledges to meet the PRGT loan and subsidy fundraising targets ahead of the October Annual Meetings in Morocco.
Accelerate the implementation of the G20 Common Framework for debt treatment to improve creditor coordination and confidence.
Use multilateral forums such as the Global Sovereign Debt Roundtable and the April 12 Spring Meetings session on concessional financing to build consensus and expedite support.

Source: Kristalina Georgieva, March 31, 2023.