By Clara Nwachuwu, Washington DC
The Global Sovereign Debt Roundtable (GSDR), yesterday identified ways to address debt sustainability and debt restructuring challenges.
Discussions around these were held at the on-going World Bank Group/International Monetary Fund (IMF) 2023 Spring Meetings of the in Washington DC.
Discussion focused mainly on “actions that can be taken now to accelerate debt restructuring processes and make them more efficient, including under the G20 Common Framework.”
A joint statement at the end of the meeting, by the IMF Managing Director, Kristalina Georgieva, World Bank Group President, David Malpass, and the Indian Minister of Finance, Nirmala Sitharaman, co-chairs of the GSDR, stressed the importance of information sharing among parties.
The statement reads in part: “We agreed on the importance to urgently improve information sharing including on macroeconomic projections and debt sustainability assessments at an early stage of the process.
“The IMF and World Bank will rapidly issue staff guidance on information sharing at each stage of the restructuring process.”
Also in focus at the meeting was the role of Multilateral Development Banks (MDBs) in these processes through the provision of net positive flows of concessional finance.
Specifically, the International Development Association (IDA)’s provision of positive net flows and the ex-ante implicit debt relief through increased concessions and grants to countries facing higher risks of debt distress was welcomed.
“To clarify key concepts to support predictability and fairness of debt restructuring processes, a workshop will be organised in the next weeks on how to assess and enforce comparability of treatment.
“Further work will be undertaken on principles regarding cut-off dates, and formal debt service suspension at the beginning of the process.
“Also, further work will be undertaken on the treatment of arrears, and perimeter of debt to be restructured, including with regards to domestic debt.
“This work will also help in clarifying potential timetables to accelerate debt restructurings.”
The co-chairs said the IMF, World Bank and the G20 Presidency would continue to work closely together and with other partners to further support the international response to current debt challenges.
The first set of measures should be focused on containing inflation, but the other challenge here is heightened debt sustainability concern and a lack of access to financing.
Debt crises in low-income countries
Meanwhile, the IMF has made recommendations on the way out of rising public debts and debt servicing burdens amongst low-income countries, including Nigeria.
With the proposed securitization of the N23.7 trillion CBN loan to the Federal Government, Nigeria’s debt stock could climb to about N77 trillion by mid-year.
The Division Chief, Fiscal Affairs Department of IMF, Paulo Medas, said: “What we have seen in the dynamics, especially in African countries, is that debt continues to rise. The problem is because the deficits remain elevated, but the other part is because interest rates are rising, and many of these countries are also recording depreciation of the currencies which also raises debt.
“So, this has intensified tax system sustainability concerns that need to be addressed.
“At the same time, you are dealing with these very difficult conditions, including food insecurity, as there are more than 130 million people in Africa alone who are living under extreme food insecurity.”
Medas added that the development called “for tight fiscal policy. The first set of measures should be focused on containing inflation, but the other challenge here is heightened debt sustainability concern and a lack of access to financing.
“But we need to do this in a way that protects the most vulnerable, and there are two things we see which are that tax revenues that remain low in most low-income countries in Africa.
“For example, tax revenues in low income countries remain five per cent of GDP on average for people in emerging markets. So, there should be more efforts to increase tax capacity, create fiscal space, not only to manage the debt burdens, the rising debt burden, but also to address these other priorities to achieve the development goals.
“The other part we see is improved quality and efficiency of spending in many of these countries where you have untargeted subsidies like energy subsidies, but structuring these subsidies make it much more targeted while protecting those that are more vulnerable and this will help those who really need it and increase savings or other priorities.”
