IMF, World Bank urge debt relief for poorest countries amid coronavirus crisis

Decision comes as developing countries grapple with severe consequences of the rapidly spreading coronavirus

WASHINGTON: The World Bank and the International Monetary Fund on Wednesday urged official bilateral creditors to provide immediate debt relief to the world’s poorest countries as they grapple with severe consequences of the rapidly spreading coronavirus.

In a joint statement, the institutions called on official bilateral creditors to immediately suspend debt payments from International Development Association (IDA) countries, if requested. Those nations, home to a quarter of the world’s population and two-thirds of the world’s population living in extreme poverty, will be hardest hit by the pandemic, they said.

“This will help with IDA countries’ immediate liquidity needs to tackle challenges posed by the coronavirus outbreak and allow time for an assessment of the crisis impact and financing needs for each country,” the IMF and the World Bank said.

Most of the 76 countries receiving IDA support have gross national income per capita of below $1,175, a threshold that is updated annually.

‘Highly indebted states have limited policy space’

The World Bank and the IMF said suspending debt payments, consistent with national laws of the creditor countries, would provide “a global sense of relief for developing countries” and send a strong signal to financial markets.

They urged the world’s 20 largest economies (G20) to support their call for action.

Pakistan’s public debt stood at 85% of gross domestic product (GDP) or Rs31.8 trillion at the end of last fiscal year. In terms of the size of national economy, the public debt is projected at 83% of GDP by the end of current fiscal year.

Similarly, Pakistan’s gross official foreign currency reserves held by the central bank are also highly dependent on hot foreign money. In the past almost five months, foreign investors had invested $3.4 billion in government securities.

However, after local and international markets reacted nervously to the situation arising out of the surge in coronavirus contagion, so far foreign investors have withdrawn $1.74 billion worth of hot foreign money or more than half of their total investment, according to the State Bank of Pakistan (SBP).

Pakistan puts currency printing press on high alert

G20 leaders are due to hold a virtual summit on Thursday to discuss an action plan to deal with the worsening pandemic.

The new coronavirus, which originated in China in December, has infected over 438,000 people around the globe and killed more than 19,000, according to a Johns Hopkins University tally.

The World Bank and the IMF invited G20 leaders to assess the crisis impact and financial needs for each of the IDA countries, including identifying those with unsustainable debt situations, and to prepare a proposal for comprehensive action by official bilateral creditors.

They said they would seek endorsement of the proposal at the combined spring meetings of the WB and the IMF next month.

(With additional input from Our Correspondent in Islamabad)