IMF Advocates For Interest-free Loans To Developing Countries

Interest-free Loans

Kristalina Georgieva, managing director of the International Monetary Fund (IMF), has cautioned that a number of recent economic shocks, coupled with a modest increase in per capita income in more than three decades, have placed emerging economies in grave risk if immediate action is not taken.

During the beginning of a session on concessional financing at the ongoing World Bank and IMF Spring Meetings taking place in Washington, DC, Georgieva said the world must come together to close the gap that is now present.

She made a suggestion that since the COVID-19 epidemic broke out, the IMF has given $24 billion in assistance through the Poverty, Reduction and Growth Trust (PRGT), easing the suffering of the poor and halting the spread of instability across national boundaries.

The head of the IMF was quick to point out, however, that rising interest rates have increased the cost of borrowing and widened the funding gap.

“We have to work together to close this gap and I have no doubt that we will be successful,” Georgieva added that every dollar dedicated to PRGT subsidies turns into $5 of interest-free loans.

She requested commitments of $1.6 billion as a first step toward bridging the subsidy shortfall, claiming that $4.7 billion is required to overcome the credit market imbalance.

She noted that lowering the cost of lending to low-income nations is more difficult when interest rates are higher and added that as a result, the resource gap for the PRGT has widened.

“What this means is that by October, by closing this gap, we can restore access to concessional financing for PRGT-eligible countries at par with access for our GRA-eligible countries.”

That is meaningful on its own from a financial standpoint. It is also meaningful in terms of equality of treatment and the sense that we are one community – all our members,” she stated.

The head of the IMF emphasized the importance of reaching a consensus and developing a burden-sharing plan to restock the PRGT so it can continue to help the low-income members adequately in the long run.

“So, I suggest that we launch this road to Marrakesh today. To help us see how we travel this road, we asked two leaders to provide us with some thoughts around what it means and why it matters,” Georgieva added.

Gita Gopinath, the IMF’s first deputy managing director, also disclosed that 25% of emerging market economies are borrowing at exorbitant rates, increasing global risks in an environment of high inflation and high interest rates, and that roughly 15% of low-income nations are in debt trouble.

IMF capacity building aims to provide countries with instruments for better debt management and transparency since sound policies and robust institutions are essential to preventing financial distress.

“You can’t talk about good financial management unless you have a good sense of exactly how much debt your countries have,” said Gopinath.

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