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Wednesday, 15 April 2020

IMF waives USD 214 mn in debt to developing countries to repurpose funds for covid-19

IMF relieves 25 developing nations from USD 214 mn in debt to repurpose funds for covid-19: The IMF has canceled debt payments for 25 of its most vulnerable sovereign debtors through grants from its catastrophe trust CCRT, the lender said in a statement. This allows the countries — which are located in sub-Saharan Africa, Asia, and the Caribbean — to use a combined USD 214 mn to combat covid-19, according to calculations by UK charity Jubilee Debt Campaign cited by the Financial Times. This comes ahead of the IMF and World Bank’s Spring Meetings this weekend, where G20 ministers are expected to approve a short-term debt moratorium for emerging economies.

Countries are lining up for bailout money: The IMF has so far signed off on USD 3.4 bn in anti covid-19 facilities to 12 countries in sub-Saharan Africa and eastern Europe, and there are six other pending requests, including from Nigeria, Pakistan and Columbia, according to the FT. Those funds come from an IMF / World Bank USD 260 bn emergency fund that can be deployed to countries eligible for support from the World Bank’s International Development Association.

The jury is out on what the fund should do: If the IMF promptly lends emerging countries, this risks further driving away foreign portfolio inflows to EMs by crowding out private investors, who would be brought to expect losses in case of sovereign defaults, economist Tobias Krahnke writes in a column for the Centre for Economic Policy Research’s policy portal Vox. Foreign investors have already pulled a record USD 83 bn from emerging markets in March in a global risk-off, leading to a debate on what the IMF should do in case countries go looking for other sources of finance. In effect, it is “not whether the IMF has sufficient resources for large-scale financial assistance to all of its members in need, but that such assistance would ultimately be counterproductive,” says Krahnke.

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