IMF chief calls for 'faster, more efficient' plan for debt relief amid pressure on China to ease distress
Vulnerable countries urgently need a faster and more efficient process to restructure debts, said the head of a major international financial institution, amid criticisms over China's role in debt relief as sovereign defaults reach a record high.
Speaking at the Boao Forum for Asia on China's Hainan island on Thursday, International Monetary Fund (IMF) managing director Kristalina Georgieva highlighted the hardships endured by people in low-income and vulnerable countries over the past three years.
Georgieva urged governments to provide fiscal support to groups in need and those affected by food insecurity and the rising cost of living, while also stressing the need for countries in relatively stronger positions to help the vulnerable members in the global community.
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"With interest rates high and many currencies depreciating, this is particularly important for countries in debt distress. We urgently need faster and more efficient global mechanisms for providing debt treatments to these countries," Georgieva said.
She added that China's engagement in the Common Framework, a mechanism set up in November 2020 to make it easier for 73 low-income countries to achieve debt relief, and participation in the new Global Sovereign Debt Roundtable are "very much welcome".
Georgieva had met Premier Li Qiang on Wednesday, with the pair agreeing to "deepen cooperation" over economic policy regulation, prevent trade fragmentation and help developing countries better cope with debt crises, according to the official Xinhua News Agency. She also met former central bank chief Zhou Xiaochuan, having earlier also met current People's Bank of China governor Yi Gang and Minister of Finance Liu Kun during her trip to China.
China has been blamed for its opaque lending practices to low-income countries over costly projects, as well as delaying debt restructuring efforts led by the IMF.
According to Fitch Ratings, a record number of countries - Belarus, Lebanon, Ghana, Sri Lanka and Zambia - are all in default. A sovereign default occurs when a sovereign state is unable to pay back its debt in full when it is due.
There have been 14 separate defaults across nine different sovereigns since 2020, up from the 19 defaults across 13 different countries between 2000 and 2019, the US ratings agency said on Wednesday.
The Common Framework, endorsed by the G20 and the Paris Club of creditor nations, is not "proving effective" in resolving crises quickly, Fitch Ratings said.
"So far, only Chad has completed a restructuring in November 2022, and this just involved a reprofiling of debt rather than any reduction in face value," said Fitch Ratings.
The median duration of default for Fitch-rated sovereigns since 2000 is 35 days, but for defaults since 2020, it has risen 107 days, the report said. The cured defaults by Lebanon and Zambia are already the second- and fourth-longest defaults recorded by Fitch.
Fitch noted that restructuring involving debt to both bilateral and private-sector creditors has moved slower, particularly when debt to China is a significant proportion of the overall burden, including both Sri Lanka and Zambia.
"A slow and inefficient debt-restructuring framework with limited cooperation between creditors will tend to mean that sovereigns languish longer in default. That would not appear to serve the interests of either debtors or creditors, and would add to the cost of financing and potentially lead to weaker economic outcomes," Fitch Ratings said.
China is not a member of the Paris Club, which consists of mostly traditional Western creditor nations including the United States, Britain, Russia and Germany, but is a large lender to low-income nations through bilateral loan agreements.
A study released on Monday by researchers at AidData, the World Bank, the Harvard Kennedy School and the Kiel Institute for the World Economy, estimated that China spent US$240 billion bailing out 22 developing countries between 2008 and 2021, with the amount rising in recent years as more have struggled to repay loans to projects under Beijing's Belt and Road Initiative.
The report highlighted that Beijing set up a new global system for cross border rescue lending, but it was executed in an "opaque and uncoordinated" way and its "strictly bilateral approach" has made it more difficult to coordinate with other emergency lenders.
On Tuesday, Ministry of Foreign Affairs spokeswoman Mao Ning said China has always carried out investment and financing cooperation with developing countries based on the "principle of openness and transparency" and that it is making progress with President Xi Jinping's pledge to rechannel US$10 billion of its IMF special drawing rights to African countries as debt relief.
"Due to various external factors, debt risks facing developing countries have recently risen significantly. Some people have exploited this situation by falsely accusing China of 'debt traps' and 'opaque loans. China does not accept this," Mao said, responding to a question over its bailing out of developing countries.
"China attaches importance to debt sustainability, and has issued the guiding principles on financing the development of the belt and road and a framework for debt sustainability analysis in collaboration with countries concerned to help partner countries improve their debt management capacity."
This article originally appeared on the South China Morning Post (SCMP).
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