Need global coordination to restructure vulnerable countries’ debt: FM

There is a need for international co-ordination to find ways for restructuring debt of vulnerable low and middle income countries, Finance Minister Nirmala Sitharaman said on Friday.

“The international community must collaborate and find stronger ways to coordinate debt restructuring for low-income and vulnerable middle-income countries facing debt distress,” she said in a virtual address at the G20 Finance Track seminar on Global Economy, organised in collaboration with RBI.

• Also read: IMF and World Bank need to do more for countries in debt distress: RBI Governor

The community can contribute to releasing financial resources in debtor countries to shield vulnerable population from economic hardship by restructuring existing debt and enhancing access to affordable finance.

Given the persisting disparities in access, usage and quality of financial services among vulnerable population and MSMEs, it is imperative to use technological transformation and digital progress for “a fair and inclusive future,” she said.

Economic risk

Escalation of debt issues in vulnerable economies poses significant economic risk to their sustainable development, Sitharaman said adding that the Indian G20 Presidency has placed great importance on the management of the global debt vulnerabilities, including through the strengthening of multilateral development banks (MDBs).

MDBs are facing increasing demands from donor and borrowing countries to expand their lending operations beyond their core development mandates, she said adding these institutions however are not equipped to address this rising demand for their resources adequately.

• Also read: India is optimistic, positive about its future growth, says FM Sitharaman

In order to constructively contribute to the efforts that MDBs are undertaking, India has set up an independent expert group on strengthening MDBs. The committee has submitted its first report and the second report is expected to be submitted before the final G20 Finance track meeting in October.

“We have made significant efforts this year in providing momentum for debt treatment for some countries. The G20 also stress the criticalities of addressing debt vulnerability in low and middle income countries through an effective, comprehensive and systematic approach,” she said.

Financing challenge

“The financing challenge, is particularly large in low-income countries given their low starting point, rapid population growth and often weak growth trajectory accounting for one-fifth of the total financing needs,” Chief Economic Advisor V. Anantha Nageswaran said.

IMF estimates additional spending in low-income and emerging economies at around $2.6 trillion by 2030, under big-ticket SDGs (sustainable development goals) delivering education, health, power, roads, water and sanitation.

The world is also witnessing increasing debt vulnerabilities and growing geo-economic fragmentation, Nageswaran said, adding that while debt is a key instrument to help countries address development needs, it has become increasingly unsustainable over the past decade leaving several countries facing severe economic distress.

• Also read: RBI holds repo rate as inflation pressure persists; imposes I-CRR to drain liquidity

“Geo-economic fragmentation will most harm emerging and developing economies that are more reliant on an integrated global economy and have benefited from globalisation,” he said.

In addition to strengthening MDBs, G20 Finance track has also made progress on managing global debt vulnerabilities, financing cities of tomorrow, developing a co-ordinated framework for regulating crypto assets and embedding digital public infrastructure as a key instrument for achieving financial inclusion, Nageswaran said.

India’s G20 Presidency started in December 2022 and will continue till November 2023.