May 28, 2023

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IMF Warns of Imminent Economic Danger, Calls for Interest Free Loans for Low-income Countries.

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CEM REPORT, ECONOMY | Higher interest rates have raised the cost of borrowing increasing the poverty margin in developing countries.

The International Monetary Fund (IMF) warns that developing economies face imminent danger if immediate actions are not taken.

Managing Director of the International Monetary Fund (IMF), Kristalina Georgieva, noted that the organisation has provided $24 billion in support through the Poverty, Reduction and Growth Trust (PRGT) alleviating the suffering of the poor and preventing instability from spreading beyond borders, since the outbreak of the COVID-19 pandemic.

Adding that best efforts are threatened by the high cost of borrowing while calling for an interest-free loan to low-income countries.

While noting that the resource gap for the PRGT has grown, she noted that every dollar committed in PRGT subsidies translates into $5 of interest-free lending, adding that $4.7 billion is needed to close the gap in the credit market.

She further solicited pledges of $1.6 billion to bridge the subsidy gap.

“What this means is that by October, by closing this gap, we can restore access to concessional financing for PRGT-eligible countries at par with access for our GRA-eligible countries.

That is meaningful on its own from a financial standpoint. It is also meaningful in terms of equality of treatment and the sense that we are one community – all our members.”

Georgieva stressed the need for consensus building and a burden-shared strategy to replenish the PRGT so it can provide adequate support to low-income members for the longer term.

“So, I suggest that we launch this road to Marrakesh today. To help us see how we travel this road, we asked two leaders to provide us with some thoughts around what it means and why it matters.”

Also, the IMF’s First Deputy Managing Director, Gita Gopinath, revealed that nearly 15 per cent of low-income countries are in debt distress and 25 per cent of emerging market economies are borrowing on extremely expensive terms, deepening global risks in a high-inflation, high-interest rate environment.

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