High debt could slow countries' recoveries: IMF

NEW YORK, April 18 (AFP): Debt accumulated by businesses and individuals worldwide could slow economic recoveries from the pandemic crisis, the IMF warned Monday.
Governments took exceptional measures to support their economies as Covid-19 spread two years ago, including rolling out debt repayment suspensions or offering large-scale loans.
But these programmes resulted in higher debt levels for some sectors, including those most disrupted by the virus, like tourism and restaurants, as well as low income households, the Washington-based crisis lender said.
In a chapter of its World Economic Outlook, the IMF said the debt burden could hold growth back in developed countries by 0.9 per cent and in emerging markets by 1.3 per cent over the next three years.
"Financially constrained households and vulnerable firms, which have grown in number and proportion during the COVID-19 pandemic, are expected to cut spending by more, especially in countries where the insolvency framework is inefficient and fiscal space limited," the lender said.
To avoid exacerbating problems, government should "calibrate the pace" of phasing out aid and spending programs.
"Where the recovery is well underway and balance sheets are in good shape, fiscal support can be reduced faster, facilitating the work of central banks," the IMF said.
For struggling sectors, governments could offer aid to prevent bankruptcies, or provide incentives for restructuring, rather than liquidation.
"To lessen the burden on public finances, temporary higher taxes on excess profits could be envisaged. This would help claw back some of the transfers to firms that did not need them," the lender said.
Another report from Washington adds: The World Bank is seeking to create a $170 billion emergency fund to help the poorest nations being buffeted by multiple crises, the bank's President David Malpass said Monday.
The "crisis response envelope" will continue the work begun during the Covid-19 pandemic, and help countries deal with surging inflation, which was made worse by the Russian invasion of Ukraine as well as the "severe financial stress" caused by high debt levels, he said.
"This is a continued massive crisis response," Malpass told reporters.
High debt and inflation "are two big problems facing global growth," he said.
"I'm deeply concerned about developing countries. They're facing sudden price increases for energy, fertilizer and food."
The Washington-based development lender last week downgraded its forecast for global growth this year, and the IMF is expected to do the same when it releases its updated forecasts on Tuesday.
Speaking ahead of this week's spring meetings of the IMF and World Bank, Malpass said the 15-month aid fund would run through June 2023 and build on the $157 billion Covid-response fund, which expired in June 2021.
"We expect to commit around $50 billion of this amount in the next three months," he said, adding that he plans to discuss the fund with the bank board in coming weeks.
Malpass repeated his concern for poor countries facing high debt levels, noting that 60 percent of low-income countries already face debt distress or are at high risk.
He has recommended improvements in the G20 Common Framework adopted last year, which was meant to offer a path to restructure large debt loads, but has not yet produced results.
A key hurdle is the lack of information on the size of debt owed to China, as well as some other lenders, by private companies as well as governments.
G20 finance ministers will meet on Wednesday on the spring meetings' sidelines.