Poor Countries Will Require $500 Bn In External Financing By 2026: IMF

The International Monetary Fund said on Thursday that low-income countries will require nearly USD 500 billion in external financing between 2022 and 2026, an increase of about USD 57 billion from a year ago, owing largely to spillovers from Russia's war in Ukraine.

In a new policy paper, the IMF said that the Ukraine war, which has exacerbated inflation with significant increases in global food, energy and fertiliser prices, will stymie low-income countries' recovery from the Covid-19 pandemic and further delay income per capita convergence with more advanced economies.

According to the IMF, the fiscal position of low-income countries “is increasingly under stress as governments ramped up spending to address the impact of the pandemic and the war in Ukraine and protect the vulnerable from high food and fuel prices, resulting in increased debt vulnerabilities.”

According to the report, growth in these countries has slowed in 2022, while rapidly accelerating inflation has widened fiscal deficits.

While debt sustainability indicators have not yet reached the levels seen on the eve of the IMF-World Bank Heavily Indebted Poor Countries (HIPC) initiative's 1996 launch, the shift in the creditor landscape toward non-Paris Club and private creditors “brings new challenges for a swift and orderly debt restructuring,” according to the IMF.

In recent years, China has surpassed the United States as the world's largest bilateral creditor, drawing increasing criticism from Western countries for its unwillingness to grant debt relief to distressed developing countries.

The Fund's latest projections come a day after the World Bank released a new report on the world's poorest countries' rising debt burden, predicting that they will now spend more than a tenth of their export income (USD 62 billion) to service external bilateral debt, the highest proportion since 2000.

The IMF estimated that low-income countries' external funding needs from 2022 to 2026 to address the Covid-19 pandemic's legacies accelerate stalled income growth and rebuild external buffers would total USD 440 billion, roughly the same as an estimate from a year ago for the 2021-2025 period.

However, the additional funding requirements prompted by the Ukraine war would bring the total to at least USD 497 billion, according to the IMF.