Developing Countries Face Rising Debt Burden
A group of development experts has proposed a new international financing initiative to help heavily indebted developing countries secure fresh funding for economic growth and investment. The proposal, the “Growth and Investment Reset,” seeks to coordinate the efforts of the International Monetary Fund, World Bank, bilateral creditors, and private lenders.
The initiative comes as developing countries face rising interest costs and growing pressure on public finances. The experts behind the proposal said countries face a particularly difficult situation because borrowing that countries took at low interest rates during the COVID-19 period is now coming due while global borrowing costs have increased sharply.
Interest payments squeeze public investment
Interest payments now account for more than 10% of government revenue on average across developing countries, according to the authors of the proposal. In 10 countries, debt-service costs have already exceeded government spending on public investment.
The framework would initially cover around 40 countries that experts consider to have sustainable debt levels. However, some countries would still require formal debt restructuring because refinancing alone cannot manage their existing debt burdens.
The proposal calls for the IMF to establish a dedicated programme providing significant amounts of long-term financing to eligible countries. The World Bank would complement that support through lending and guarantees.
G20 expected to play a role
The authors also designed the initiative to involve bilateral creditors, including China, which participating countries could ask to roll over existing debt.
The authors want the proposal to move forward through the G20, which Britain will chair next year. The initiative comes shortly before the annual meetings of the IMF and World Bank in Bangkok, where participants expect developing-country debt, high energy costs, declining development assistance, and rising borrowing costs to be major topics.
The proposal aims to prevent countries from using low-cost multilateral financing simply to repay more expensive bilateral or private debt, while also encouraging new investment and private capital flows.
