The issues will be top of mind next week in meetings of the International Monetary Fund and World Bank in Washington, amid warnings that global growth will reach just 2.8% by 2030, a full percentage point below the historical average. Shambaugh said developing countries were spending more to service their public and private debt than they were receiving in fresh funds, with the outflows going largely to emerging official creditors. Almost 40 countries saw external public debt outflows in 2022, and the flows likely worsened in 2023, he said, noting that Sub-Saharan African countries had been unable to access bond markets at all last year. To counteract the trend, Shambaugh said official bilateral creditors should pledge to sustain net positive flows to countries that were pursuing responsible policies, especially when the IMF and the multilateral development banks (MDBs) had backed their reforms and investment plans. Some G20 creditors, he said, were not sustaining financial flows to countries with IMF programs, he said, noting that dozens of low- and middle-income countries had negative net debt flows to Chinese public and private creditors.
“No individual creditors should be free-riding by pulling funds out of a country while it is implementing IMF- and MDB-supported reforms, and other bilateral and multilateral creditors are refinancing or rolling over funds, or injecting new resources,” he said. Shambaugh also called once again for changes to ensure that the G20 Common Framework produced deeper and more timely restructurings. He said the United States and other creditors had sharply scaled back loan exposures to developing countries following a wave of debt treatments in the 1980s and 1990s, and were now providing far more grants to these borrowing countries. For example, Washington disbursed nearly $70 billion in aid to Sub-Saharan African countries over the past five years, nearly seven times the net debt flows from all Chinese creditors, he said, saying it would be “helpful” if more emerging creditors made the shift. He also said private funds should not be flowing out of developing countries with strong macro frameworks, calling for creditor countries to incentivise continued private sector engagement through credit enhancements and borrower protections. Countries should also create safe harbours for borrowing countries seeking proactive relief from private debt distress on a voluntary basis, he said.
REUTERS