IMF to consider debt restructuring for countries facing insolvency

Saturday April 15 2023
IMF Managing Director Kristalina Georgieva

IMF Managing Director Kristalina Georgieva who has has called for debt restructuring for countries facing insolvency and debt stress. PHOTO | KEVIN DIETSCH | GETTY IMAGES VIA AFP


The International Monetary Fund will address the debt crisis country by country, and for countries facing insolvency, debt restructuring might be necessary.

The Fund made the call during the World Bank/IMF Spring Meetings in Washington DC this past week as civil society and pressure groups called for debt forgiveness.

A number of countries including Zambia, Ghana have defaulted in debt repayment and Kenya is facing a potential crunch point in June 2024 when a 10-year Eurobond worth $2 billion will be due, unless a yield retreat allows for refinancing.

IMF Managing Director Kristalina Georgieva has called for debt restructuring for countries facing insolvency and debt stress, admitting that the lending landscape has changed drastically while debt resolution mechanisms have not.

“We take it upon us to support a more inclusive and more effective debt resolution. If we create a fair inclusive atmosphere for discussion as we have done now then the part of the resolution is clear. We will address the debt resolution country by country basis,” she said.

Debt restructuring


“For countries that face solvency or liquidity constraints, debt restructuring is necessary. In this context, it is critical to improve the timeliness and efficiency of the G20 Common Framework,” she added.

Debt restructuring would include countries refinancing their existing debts to gain more flexibility in the short term and make their debt load manageable.

Georgieva pointed out that the newly created Global Sovereign Debt Roundtable can help official bilateral creditors, private creditors, and borrowers come to a better understanding of ways to overcome the shortcomings in debt restructurings.

But civil society and pressure groups want the World Bank and IMF to seek quick solutions to debt, claiming that drove most developing countries to debt are beyond their control.

“You shouldn’t punish countries for these external factors such as Covid-19, Russia invasion of Ukraine, or fuel price. Instead you should find terms that enable them manage through their debt and which protect the livelihoods of Zambians, or Ghanaians,” said Mark Malloch-Brown, president of the Open Society Foundations.

Developing nations

The IMF chief noted that debt for developing nations has worsened due to vulnerabilities in growth, shortfalls in government revenues compared with spending, the Covid-19 pandemic, commodity price shocks and higher borrowing costs.

“Debt has been a huge damp blanket on growth in the Global South, and it has not been used or deployed in a productive way. Investments that precede the debt, we have been told, have not achieved their objectives,” he said.

A delegation of Kenyan MPs to the Spring Meetings also voiced their concerns about the country’s growing debt, proposing that they should be involved in the loan application process in order to guide legislation on the same.

“As you heard in the past few weeks, most of the civil servants have been complaining they have not been paid. But it is not just civil servants, it is because the country is struggling to come out of this debt situation,” said Abraham Kirwa, Mosop MP and member of the Debt Committee in the National Assembly.

“The appetite for debt in most developing countries, including Kenya, has become a problem. The Eurobond is due in a few months and we don’t have the money to pay. As a nation, we need to put out some austerity measures to cut down on waste.”