Rising interest rates are pinching the world’s poorest nations as they battle with the Covid-19 and surging food prices, according to the heads of the International Monetary Fund (IMF) and the World Bank on Wednesday.
In a news conference, World Bank President David Malpass stated that there is “a huge build-up of debt, especially in the poorest countries. As interest rates rise, the debt pressures are mounting on developing countries, and we need to move urgently towards solutions.”
The “debt crisis,” is a hot subject at this week’s World Bank and IMF spring meetings, which are already overshadowed by other pressing topics including the Russian invasion of Ukraine, Covid-19, and a weakening global economy.
IMF Managing Director Kristalina Georgieva told reporters that 60% of low-income countries were in or near “debt distress,” defined as debt payments equaling half the size of national economies.
To protect their economies from the horrors of Covid-19 and the accompanying lockdowns, countries piled on debt. According to the IMF, government debt in low-income countries will exceed 50% of gross domestic product this year, up from less than 44% in 2019.
Business resurgence after the lockdowns has seen companies try to fulfil soaring customer demand, which put factories, ports, and freight yards under strain. Prices went up as deliveries lagged. Consumer prices are expected to rise by 8.7% in emerging economies and 5.7% in developed economies this year, the highest level since 1984.
In response, the world’s central banks, led by the Federal Reserve of the United States, are hiking interest rates to battle growing prices. Higher interest rates will exacerbate debt burdens, especially in the world’s poorest countries.
Sri Lanka said that it will halt foreign debt repayments awaiting the conclusion of a loan restructuring program with the IMF to address the island nation’s worst economic crisis in decades.
Marcello Estevo, the World Bank’s global director of macroeconomics, trade, and investment, predicted that there would be ‘the largest spate of debt crises in developing economies in a generation,’ it would be ‘nothing like the emerging market debt crises of the 1980s and 1990s.’