The International Monetary Fund estimates that between 2022 and 2026, low income countries will require USD 500 billion in external financing, an increase of over USD 57 billion from the previous year. According to a recent policy paper from the IMF, the conflict in Ukraine, which has caused significant increases in food, energy, and fertilizer prices globally, will make it more difficult for low-income countries to recover from the Covid-19 pandemic and further postpone their convergence with per capita income levels of more developed countries.
IMF says “Poor Countries to require $500 Bn in External Financing by 2026
The impact of the pandemic, the war in Ukraine, and government expenditure increases to protect the vulnerable from high food and fuel costs have put the fiscal policies of “low income countries” under pressure and exacerbated debt risks. Growth in these countries has stalled, inflation has picked up speed, and budget deficits have grown.
Conflict in Ukraine and Covid-19 Pandemic has impacted full scale recovery of Low-Income Countries
The shift in the creditor landscape toward non-Paris Club and private creditors, which brings new challenges for a swift and orderly debt restructuring, has not yet caused debt sustainability indicators to reach the levels that were seen on the eve of the IMF and World Bank’s Heavily Indebted Poor Countries (HIPC) initiative’s launch.
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China has emerged as the World’s largest bilateral creditor
China has become the largest bilateral creditor in recent years, despite considerable accusations from Western nations that it is unable to provide debt relief to distressed developing nations.
The latest projections from the fund were released a day after the World Bank released a new report on the world’s poorest countries’ increasing debt burden, which predicted that they now spend more than a tenth of their export revenue (USD 62 million) servicing external bilateral debt, which is the highest proportion since 2020.
The IMF predicted that low-income countries will require USD 440 billion in external financing from 2022 to 2026, or about the same as it had predicted for the years 2021 to 2025, to address the Covid-19 pandemic’s consequences, accelerate stalling income development, and strengthen external buffers.
The additional funding needs brought on by the Ukraine war, however, would increase the total to at least USD 497 billion, according to the IMF.
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