Credit Kim Haughton/IMF Photo
Credit Kim Haughton/IMF Photo
Many countries are being squeezed by increasing interest payments and high debt redemptions. The economic scarring of the pandemic, conflicts around the world, and the abrupt rise in global interest rates have hit low-income countries the hardest. 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. Following years of substantial borrowing, 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.
Improved creditor processes—thanks to the work of creditor committees and the Global Sovereign Debt Roundtable, the Group of Twenty, the Paris Club, and others—helped streamline sovereign debt restructuring and shorten restructuring timelines. However, more work is needed to make these processes faster and further reduce uncertainty.
While we avoided a systemic debt crisis so far, higher interest payments and debt redemptions are stifling growth and employment while also placing significant pressures on many countries’ public finances. This comes at a time when countries need critical investment to achieve sustainable and inclusive economic growth and adapt to climate change. Left unaddressed, these liquidity pressures could lead to solvency problems for many vulnerable countries. In other words, what is now a squeeze on public finances could morph into a debt crisis, with substantive implications for growth, job creation, and poverty.
The global community must act now to avoid this outcome.
The IMF and World Bank together propose a package of actions to support low-income countries and other vulnerable countries as they work to manage these pressures with the aim of creating more room in government budgets to support growth and build resilience.
Our approach rests on three pillars:
We will refine these options before the IMF-World Bank Annual Meetings in October, including through work of the Global Sovereign Debt Roundtable.
Ultimately, our three-pillar approach aims to ease liquidity challenges. By mobilizing a set of actions across multiple stakeholders, we can promote cooperative solutions and help create the conditions for lasting growth and resilience.
