IMF says debt restructuring is improving but needs to happen faster

The International Monetary Fund (IMF) said on Sunday that sovereign debt restructuring processes in countries in trouble are moving faster, but said assistance mechanisms need to be sped up.

“When countries fall into financial default [default, no original em inglês]”Restructuring is critical to containing the damage, and restructuring must be done as quickly as possible because delays exacerbate problems, make adjustments more difficult, and increase costs for both creditors and debtors,” the IMF said in a blog post about the government debt restructuring process for the most indebted countries.

“While some sovereign debt restructuring processes have encountered significant delays, we are working with our partners to accelerate the process, and the progress we have made to date shows that the world can work together to reduce risks,” he added in article. signed by Director of the Department of Strategies, Policy and Review, Ceyla Pazarbasioglu.

The global economy, according to the economist, “has avoided what could have been a systemic debt crisis during the turbulence of recent years, but vulnerabilities remain significant in the context of high debt servicing costs,” especially among developing countries, 15% of which have interest rates. rates are considered unacceptable, also among low-income countries, which will need to refinance about $60 billion, about 56 billion euros, over the next two years, equivalent to tripling the need over the last decade.

“About 15% of low-income countries are in debt crisis. [‘debt distress’, no original em inglês] and another 40% are at high risk of ending up in this situation,” writes Ceyla Pazarbasioglu.

In the article, the director of the department tasked with liaising between the IMF and various international institutions such as the G20 states that despite difficulties, debt restructuring processes, the most recent model of which is the Common Structure and Debt Roundtable, are improving the situation .

“Results are emerging that reduce the time between technical agreement with the IMF, which is a critical step for an IMF program, and the provision of financial guarantees to official creditors needed for program approval” by the Fund, he said, meaning that “it is possible to speed up assistance to the country.” much-needed financial assistance.”

As an example, Pazarbasioglu points to Ghana, whose agreement this year took five months, more or less half of what it took for Chad in 2021 and Zambia in 2022, “and negotiations with Ethiopia should go faster, by about two to three months.”

The improvements are a result of non-traditional lenders such as China, India or Saudi Arabia entering the scene, as “familiarity with the process has helped parties know what to expect, built trust, and allowed lenders to resolve what they previously considered insurmountable.” obstacles.”

In April, the IMF announced that it had streamlined the process for approving financial programs to allow for faster disbursement of funds and intervention in cases where there are problems with coordination among creditors, in addition to a new procedure that does not require official letters and only evaluates the presence of a “credible official process with creditors,” emphasized the person in charge.

This year, the Fund plans to introduce additional proposals that will clarify the process, including a review of the parameters of the debt sustainability analysis for low-income countries, which is conducted jointly with the World Bank and determines whether countries can receive financing, it concludes. .