Kristalina Georgieva, Ajay Banga To Address Debt Resilience In Developing Countries

The International Monetary Fund (IMF) and the World Bank are set to lead discussions on how developing countries can enhance their resilience to debt risks and ensure continued funding for critical sectors such as healthcare and infrastructure.

This high-level conversation, scheduled for 12 October, aims to explore strategies for strengthening the debt management capabilities of nations while addressing the pressing issue of sovereign debt sustainability.

The World Bank posted on X, “How can developing countries become more resilient to debt risks & safeguard funding for critical needs such as healthcare & infrastructure? Kristalina Georgieva and Ajay Banga lead a high-level World Bank meetings conversation on Thursday, 12 October."

Public debt, also known as sovereign debt, serves as a crucial means for governments to finance investments in economic growth and development.

However, maintaining the ability to service this debt and ensuring its sustainability are equally vital. Falling into debt distress can have severe consequences, jeopardizing macroeconomic stability and impeding a nation's development trajectory.

Managing debt risks and resolving debt distress are central to the IMF's mission, taking various forms.

The IMF's analytical work plays a pivotal role in identifying sovereign debt risks and offering early-stage policy advice. Collaboratively with the World Bank, the IMF works to promote debt transparency and bolster countries' capacity to report and manage their public debt.

Technical support is provided to member countries for crafting debt management strategies and developing local currency bond markets, fostering a resilient debt structure capable of withstanding economic shocks.

Countries with high debt vulnerabilities need a combination of adjustment measures and growth-restoration strategies. The IMF can facilitate these adjustments through its support programs.

However, the IMF can only extend its financial assistance if a member's debt is deemed sustainable. In cases where debt is unsustainable despite the adjustment efforts, the country's government is responsible for initiating negotiations for debt restructuring with its creditors.

An IMF-backed program can assist a member nation in the context of debt restructuring by providing sound economic policies and new financing, enabling a return to macroeconomic stability.

The IMF is also actively engaged in enhancing the international framework for sovereign debt restructurings, aiming to expedite and optimize debt reduction efforts.

The Global Debt Database (GDD), a comprehensive repository of debt-related information, has been developed to aid policymakers and researchers.

Covering an extensive panel of 190 advanced economies, emerging market economies, and low-income countries, the GDD provides data dating back to 1950.

This database plays a crucial role in assessing debt vulnerabilities and analysing trends in debt accumulation.

Many low-income and emerging economies are grappling with substantial debt burdens, constraining their ability to invest in vital sectors such as education, healthcare, social protection and infrastructure.

For some nations, the debt situation has already reached unsustainable levels. This forthcoming seminar will delve into strategies to bolster resilience against debt risks, encompassing domestic reforms to foster growth, enhance expenditure policies, elevate domestic revenue mobilization, and fortify debt management practices.

The discussions will also spotlight the necessity for increased support from the global community.

This support includes concessional financing and technical assistance, coupled with improvements in sovereign debt restructuring mechanisms. The goal is to provide timely and predictable debt relief when necessary.

The IMF and the World Bank invited all stakeholders to participate in this discussion on 12 October. The seminar aims to chart a path toward resilient economies and a brighter future for all.

The event will be broadcast live from the Annual Meetings in Marrakech, with simultaneous interpretation available in Arabic, French, and Spanish, emphasizing its global significance. (ANI)