Washington: India has said the International Monetary Fund (IMF), World Bank and other international organisations must develop and articulate a clear strategy for enhancing public debt transparency to mitigate the rising debt vulnerabilities of low income countries.
In an apparent move to address the issue of debt trap being faced by low-income developing countries (LIDCs), to which China’s “predatory economics" is playing a significant role, top officials of India, the US and Britain used various platforms in Washington during the annual Spring Meeting of the IMF and the World bank.
Economic affairs secretary, Subhash Garg, who is leading the Indian delegation in the absence of Union finance minister Arun Jaitley, raised the issue on Friday at the G20 meeting of finance ministers. The finance ministers of the US, France, Germany and Britain also highlighted the issue in their address to the IMF. Expressing concern over the rising public debt vulnerabilities in LIDCs, Garg, in his address to G20 stressed that increasing debt burden in LIDCs is, “clearly, a massive hindrance" in addressing the Sustainable Development Goals.
LIDCs face challenges centered on equitable growth, resilience, finance and partnerships, and leveraging external public and private finance, he said. To mitigate the growing debt concerns of LIDCs, he said the IMF and the World Bank and other international organisations must “develop and articulate a clear strategy for enhancing public debt transparency on both the debtor and creditor side."
He also emphasised on the need for strengthening bilateral and regional financing agreements. US treasury secretary Steven Mnuchin called on the IMF and the World Bank to develop a joint action plan on debt transparency and sustainability. “We call on the IMF and World Bank management to develop a joint action plan on debt transparency and sustainability to guide future work, ensure strong coordination between institutions, and boost visibility around these efforts," he said.
The action plan should include concrete steps to obtain more comprehensive debt data from member countries, to more clearly flag data deficiencies in debt sustainability analyses, and to enhance debt sustainability through strengthened use of debt limits and non-concessional borrowing policies, Mnuchin said.
Mnuchin said the rise of official bilateral, “plurilateral", and private creditor lending, especially to countries at high risk of debt distress, is complicating debt resolution processes necessary to re-establish debt sustainability. “Increasingly we see instances where low Income countries have borrowed excessively, and unsustainably, from large, often non-transparent emerging sovereign creditors like China or private creditors," he said.
Clear restructuring rules do not exist for these cases, creating the risk of a complicated restructuring process, creditor losses, and a decline in real median incomes in the debtor country, the treasury secretary rued. British Chancellor Philip Hammond, in his address to the IMF, expressed concern over the scale, nature and severity of rising debt vulnerabilities in LIDCs.
Forty percent of low income and developing countries now face significant debt related challenges, up from 21% in 2013, he said. “We call on the IMF and the World Bank Group to develop a joint action plan to help enhance debt transparency and address debt sustainability in LICs," Hammond said. “This should also include the promotion of sustainable lending and borrowing practices, improving the prioritisation and effectiveness of investment and supporting debt resolution mechanisms, in close coordination with the Paris Club," he said.
The rapid, strong increase in debt in developing countries and the lack of transparent, sustainable financing practices call for greater international coordination, said French finance minister Bruno Le Maire. “More specifically, this involves reinforcing the Paris Club’s position as the principal international forum for restructuring official bilateral debt, and expanding its membership to emerging creditors, as well as establishing and implementing principles of transparency and sustainable financing by public- and private-sector stakeholders," he said.
Germany’s finance minister Olaf Scholz said rising public debt, particularly in low income countries is a cause of concern. “To prevent debt from becoming unsustainable, the IMF can and should play a key role in monitoring debt developments and providing advice and technical assistance to member countries on prudent debt policies and sound public financial management," he said.
To prevent unsustainable debt developments in LICs, Germany attaches great importance to improved debt transparency and fully supports the work by the IMF and the World Bank as well as by the Paris Club on this topic, he said. “One step towards more debt transparency could be debt registries, improving the available information on loans made to LICs. This would also contribute to implementing the G20 Operational Guidelines for Sustainable Financing as endorsed in March 2017," Scholz said.
Henri-Marie Dondra, finance minister of Central African Republic, who spoke on behalf of the African countries, extended his support for greater debt transparency, more effective modalities for debt restructuring, mutually beneficial and sustainable lending practices and helping LICs make inroads toward the SDGs. PTI