The IMF and the World Bank play a crucial role in addressing global debt vulnerabilities, but are these institutions delivering?
Finance Minister Nirmala Sitharaman, in her address at the G20 Finance Track seminar on Global Economy, stressed the need to help vulnerable countries avoid the dreaded debt trap.
This focus comes at a critical time — the IMF has warned that six out of 10 low-income countries (LICs) and three out of 10 emerging market economies are at or near debt distress.
High-risk debtors
Nearly 60 per cent of all emerging and developing countries have become high-risk debtors. India has been focusing on ways to strengthen multilateral development banks, but these institutions are not equipped to address the increase in demand for their resources. But that’s only a part of the solution. The IMF and (the World Bank) need urgent reforms.
There is a power imbalance in the IMF, with the G8 controlling nearly 50 per cent of the fund’s total votes. This leaves the door open for geopolitics. What happens if tensions between China-Russia and the West increase? Will the IMF be able to function?
The delays
A Reuters report from March points out that countries seeking the IMF’s help faced huge delays in securing bailouts. It noted that the IMF’s board took 271 days to sign off on an agreement for Zambia’s bailout. A decade ago, the median number of days between the preliminary deal to board sign-off was just 55 days, it noted. Differences between China and the West on ways to provide debt relief are among reasons for the delays. Critics say that the IMF’s harsh austerity measures do not ensure recovery.
RBI Governor Shaktikanta Das correctly pointed out at the G20 event, “These institutions are at the centre of international monetary and financial system. Hence it is incumbent upon them to do more for countries in debt distress.”