The IMF has said spending nearly $ 12 billion (£ 9.2 billion) by governments to save their economies since the virus outbreak is expected to push the global debt-to-GDP ratio to nearly 100%, but that reaching this milestone should not stop further support from public funds.
Its chief executive, Kristalina Georgieva, said it was essential that all countries pursue essential measures “to protect lives and livelihoods”.Speaking at the annual IMF and World Bank meetings, she said: “Nine months after the onset of the pandemic, we are still grappling with the darkness of a crisis that has claimed the lives of more than ‘one million people and drives the economy into reverse, causing higher unemployment, growing poverty and the risk of a’ lost generation ‘in low-income countries, ”she said.
Georgieva, who oversaw the reversal of IMF advice after the 2008 crash calling on governments to use austerity to quickly reduce public debts, added: “Pull the plug too soon, and you risk serious self-harm. inflicted. ”
There were also concerns that many countries in the developing world had reached their borrowing limits and would not be able to offer similar support to their economies.
“A sustainable economic recovery is only possible if we defeat the pandemic everywhere,” Georgieva said, calling for strong international cooperation to fight rising poverty.
G20 finance ministers and central bankers at the annual meetings agreed to a six-month extension of emergency funding for the poorest countries – known as the Suspend Service Initiative. debt – but have failed to take a common approach to dealing with long-term debt restructuring.
Georgieva said low-income countries needed “more grants, more concessional credit and more debt relief”. But she couldn’t say when there would be an agreement that would allow countries to access new funds.
World Bank President David Malpass blamed “the lack of participation of private creditors and the incomplete participation of some official bilateral creditors” for the failure of negotiations.
Nick Dearden, Director of Global Justice Now, said: “The G20 is realizing that many countries have been confined to debtors prison by the coronavirus, but they need to do more than suspend their sentences. Rather, they should tear down the walls.
Rebecca Gowland, Oxfam’s Inequality Campaign Manager, said: “Failure to cancel debt payments will only delay the debt tsunami that will engulf many of the world’s poorest countries, leaving them unable to afford to invest in health care and social safety nets. desperately needed.
China is the largest creditor of countries in Africa and Southeast Asia and has resisted attempts to allow debt cancellation in loan agreements.
Chinese officials have said they cannot commit to future debt reductions implied by the common framework, as it would be illegal under Chinese law, according to a source quoted by Reuters.
Malpass said: “The tendency in past debt crises is that countries in debt distress experience a series of ineffective debt rescheduling that weakens them. Creditors may eventually allow them to move on to a debt reduction process, but at a huge cost to the poor. We have to work better and faster this time. “
Georgieva added that the IMF had accepted more than $ 280 billion in loan commitments to low-income countries, more than a third of which had been approved since March, shortly after the onset of the crisis.
The IMF has helped 81 countries and provided debt service relief to its poorest members, she said, although this is only a fraction of the billion dollar loan facility. IMF dollars.
A global recovery is projected by the IMF in 2021, with global growth expected to reach 5.2%, but it warned that significant risks remain, including the resurgence of the virus.
Growth will also be uneven, the IMF said, with African countries’ incomes set to fall next year by 3% on average unless they receive additional help from creditors.
Britain’s debt-to-GDP ratio is expected to climb to 106% of national income by the end of the fiscal year, following an increase in the annual deficit to over 10%.
British Chancellor Rishi Sunak has raised concerns that further support for the industries most affected could lead to increased borrowing, leaving the UK vulnerable to interest rate hikes in the future.
IMF Fiscal Affairs Director Vítor Gaspar said that a resumption of economic growth from next year and extremely low interest rates would help mitigate budget deficits without raising taxes or cutting spending .
“The difference between interest rates and growth is not only negative, but more negative – in our projections – than it was before Covid-19. Low interest rates therefore play an important role in debt dynamics, ”he said.
Governments should also take advantage of low rates to invest in infrastructure, he said. The IMF has calculated that an increase in public infrastructure investment of 1 percent of GDP could increase output by 2.7 percent, creating 20 to 33 million jobs.