IMF Managing Director Kristalina Georgieva is pushing China and other Group of 20 economies to speed up debt relief for a growing number of heavily indebted countries, warning that failure to do so could unleash a damaging “downward spiral.”
Georgieva told Reuters it was crucial to jumpstart the largely stalled Common Framework for debt treatments that was adopted by the G20 and the Paris Club of official creditors in October 2020 but has failed to deliver a single result thus far.
“This is a topic we cannot have complacency on,” she said. “If trust is eroded to a point that there is a downward spiral, you don’t know where it would end,” the head of the International Monetary Fund said in an interview late last week ahead of this week’s meeting of finance officials in Indonesia.
Georgieva said she spoke with Indonesian President Joko Widodo, who holds the rotating presidency of the G20 this year, during last month’s Group of Seven meeting in Germany and urged him to push for greater unity on debt before the G20 leaders summit in November.
“G20 leaders don’t want to be in a situation in which that issue dominates the conversation just because we are not making progress,” Georgieva said.
Western officials are stepping up criticism of the G20 Common Framework process after nearly two years of glacial progress blamed largely on foot-dragging by China, the world’s largest sovereign creditor, and private sector creditors.
Georgieva said almost a third of emerging market countries and twice that proportion of low-income countries were in debt distress, with the situation worsening as advanced economies raised interest rates.
Capital outflows from emerging markets were continuing and almost one in three of these countries now had interest rates of 10% or higher, Georgieva said, noting more middle-income countries, including Sri Lanka and Malawi, were seeking help from the fund, with others likely to follow.
“The pressure on us to move is very high,” she said, noting the war in Ukraine had exacerbated the crises emerging market and developing economies faced because of the pandemic.
Georgieva said it was imperative to agree on debt relief for Zambia, Chad and Ethiopia, three African countries that have requested help under the Common Framework and whose creditor committees meet this month.
She urged China to better coordinate among its multiple lenders, warning Beijing would be the “first to lose dramatically” if current debt problems tipped into a full-blown crisis.
Georgieva said she was encouraged China had agreed to co-chair Zambia’s creditor committee.
“My message to everybody is, let’s stop the finger pointing,” she said. “There’s a job to be done.”