By Rachel Savage and Kopano Gumbi
JOHANNESBURG (Reuters) – The flagship debt restructuring process for low income countries needs to speed up, otherwise there could be a series of “disorderly” sovereign debt defaults, an International Monetary Fund official said on Tuesday.
A clearer understanding is needed of what it means to treat creditors equally in the G20’s Common Framework restructuring processes, Daniel Leigh, who leads preparation of the IMF’s World Economic Report, told Reuters in Johannesburg.
The Common Framework, which was set up in 2020 by the G20 leading economies in response to the COVID-19 pandemic, has been criticised for lengthy delays and disagreements.
Zambia is in its fourth year of default, Ethiopia requested debt relief in early 2021 and defaulted in December 2023 without it, while Ghana is also restructuring its debts through the process.
“We’ve seen with… the G20 common framework some faster progress, but actually we’d like it to speed up because otherwise there’ll be a spread of defaults, disorderly ones,” Leigh said in an interview.
The IMF upgraded its global growth forecast for 2024 by 0.2 percentage points to 3.1% and said a “soft landing” for the world economy was in sight as inflation starts to ease worldwide.
Financing conditions are improving but funding is still set to remain expensive for many emerging economies, Leigh said.
“Until inflation really gets vanquished, which we actually expect to be in 2025, we’re still looking at high borrowing costs,” he said.
Sub-Saharan Africa’s growth was expected to accelerate this year to 3.8% from 3.3% in 2023. But the 2024 forecast is 0.2 percentage points lower than previous forecasts, dragged down by weaker growth in South Africa, due to ongoing electricity and port, rail and logistics constraints.
Egypt’s 2024 GDP growth forecast was cut by 0.6 percentage points to 3%, which would be a fall from 3.8% last year, the report said.
The downgrade was due to the impact of the Israel-Gaza war on “tourism and the Suez Canal earnings… (and) the persistence of foreign currency shortages and the need to really rein in inflation, raise interest rates,” Leigh said.
Ongoing IMF talks with Egypt could lead to the completion of the first and second reviews of its $3 billion program “in the coming weeks,” he said.
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