Now Is the Time to Help Countries Faced with Liquidity Challenges

IMF Blog, August 1, 2024

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The median low-income country is spending over twice as much on debt service to foreign creditors as a share of revenue than it did 10 years ago—roughly 14 percent at the end of 2023 from 6 percent 10 years earlier.
Debt redemptions in low-income countries over the near term are almost triple their long-term average: about $60 billion compared to an annual average of $20 billion from 2010 to 2020.
The economic scarring of the pandemic, conflicts, and the abrupt rise in global interest rates have hit low-income countries the hardest.
Higher interest payments and debt redemptions are stifling growth and employment, placing significant pressures on public finances, and reducing space for critical investment needed for sustainable and inclusive growth and climate adaptation.
Current liquidity squeezes could evolve into solvency problems for many vulnerable countries if unaddressed, with substantive implications for growth, job creation, and poverty.

Improved creditor processes—thanks to creditor committees, the Global Sovereign Debt Roundtable, the Group of Twenty, the Paris Club, and others—have helped streamline sovereign debt restructuring and shorten restructuring timelines.
More work is needed to make these processes faster and to further reduce uncertainty.

Pillar 1 – Domestic resource mobilization:
- Provide policy advice and capacity development assistance through the IMF/World Bank Domestic Resource Mobilization Initiative.
- Sequence reforms to accelerate economic growth and create jobs, strengthen governance, and tackle corruption.
- Improve effectiveness of public spending, increase government revenues to meet priority needs, and develop domestic financial markets to channel savings to productive uses.
- Use peer learning and cross-country experiences to guide reform implementation.
Pillar 2 – International support:
- Bilateral and multilateral development partners should provide lower-cost financing and grants to help countries meet needs while undertaking reforms.
- Many countries facing refinancing pressures need positive net flows over the next few years.
- 2024 is a critical year to successfully complete the 21st replenishment of the World Bank’s International Development Association and the IMF’s Poverty Reduction and Growth Trust review.
- The IMF and World Bank are important parts of this collective effort.
Pillar 3 – Reducing debt servicing burdens:
- Develop new solutions for countries that are illiquid but not insolvent, including mobilizing new financing from multilateral or bilateral partners and the private sector at affordable terms using credit enhancements to refinance existing debt.
- Pursue liability management operations where appropriate, including debt-for-development swaps and debt buybacks.

Options will be refined before the IMF-World Bank Annual Meetings in October, including through work of the Global Sovereign Debt Roundtable.
Mobilizing actions across multiple stakeholders aims to promote cooperative solutions and help create conditions for lasting growth and resilience.

Authors: Ceyla Pazarbasioglu, Pablo Saavedra — August 1, 2024

World Bank Document
- World Bank Document (Markdown version)
- World Bank Document (PDF)
Stepping up domestic resource mobilization: A new joint initiative from the IMF and WB
- Stepping up domestic resource mobilization: A new joint initiative from the IMF and WB (Markdown version)
- Stepping up domestic resource mobilization: A new joint initiative from the IMF and WB (PDF)