WASHINGTON, Oct 13 ― Rising debt levels and mounting fiscal pressures underscore the urgency for more “orderly debt restructuring” efforts for low-income countries, the International Monetary Fund's fiscal chief said yesterday, amid growing criticism of China for its lack of timely participation.
Fiscal Affairs Director Vitor Gaspar told reporters the problems facing low-income countries had been exacerbated by food and energy shocks and climate disasters, and it was critical to frame policies that would avert social unrest.
“The rise of extreme poverty and food insecurity that began before the pandemic should be addressed at the global level by a broad set of initiatives,” he said, as well as more efforts to reduce the debt stock of vulnerable countries.
The IMF's new Fiscal Monitor, released yesterday during the annual meetings of the IMF and World Bank, maps out the difficult trade-offs facing fiscal policymakers as they try to protect low-income families from large real income losses while avoiding moves that would contravene monetary policy.
It notes that global public debt is projected to remain elevated at 91 per cent of gross domestic product in 2022, down from a historic high in 2020 but still about 7.5 percentage points higher than pre-pandemic levels.
Low income countries are particularly vulnerable, with about 60 per cent of the poorest nations now in or at risk of debt distress.
The report comes amid mounting frustration among Western countries about what they see as foot-dragging by China, the world's largest sovereign creditor, on any moves to restructure the debts of Zambia and Chad under the Group of 20's common framework agreed in late 2020.
US Treasury Secretary Janet Yellen told an event hosted by the Bretton Woods Committee booster group that implementation of the G20 framework had been “very disappointing.”
Even where countries have asked for help, “it's simply not going well,” Yellen said, adding that “China has simply not been participating” enough to bring deals to conclusion.
China had argued in some cases that it would not take part unless the IMF or the World Bank also took a haircut, she said, but that was not feasible given the design of these institutions. “They're preferred creditors. And it's important, we think, to maintain that status.”
“We really call on China to step up. The situation's becoming very serious,” she said.
Gaspar also stressed the need for countries to narrowly target fiscal measures at those most in need, and to structure measures that helped reduce domestic demand in a world where available energy resources had shrunk.
“The Fiscal Monitor message is clear: Be prepared. Be prepared for a shock prone world,” he said.
Paolo Mauro, deputy director of the fiscal affairs department, warned of an empirical association between social unrest and episodes of spikes in food and energy prices.
To reduce the risk, it was important to “give people a feeling that the money they pay in taxes is well-spent” and focus on good governance. Fiscal transparency and progressive taxes ― that hit the rich harder ― were other options, he said. ― Reuters
