By Emeka Anaeto, Business Editor, Washington DC

The International Monetary Fund, IMF, has worked out fresh strategies to deal with the macroeconomic problems of the Low Income Countries, LICs, such as Nigeria.

Speaking today at a press briefing during the ongoing 2023 Spring Meetings of the World Bank and IMF, the Managing Director of the IMF, Ms Kristalina Georgieva, listed the problems to include inflationary pressures, financial instability, and high debt vulnerability.

According to her, fighting inflation and safeguarding financial stability have become more complex with recent global banking sector pressures, stressing, “an issue that we all have to be very mindful of is that low-income countries are particularly vulnerable, given the high level of debt and their per capita income growth lapses that they have and that means it is harder and harder for them to catch up.”

On the way out, she stated: “First, restoring price stability and safeguarding financial stability is a prerequisites for a return to robust growth. So long as financial pressures remain limited, we expect central banks to stay the course in the fight against inflation, holding a tight stance to prevent reaggravated inflation expectations. 

“Further efforts to reduce budget deficits, are critical to support the fight against inflation and reduce debt. But this is not an easy task. We still have to care about the most vulnerable segments of our societies.

“Also central banks should address financial stability risks where they emerge, working closely with regulators and supervisors. The key is to monitor risks that may be hiding in the shadows in banks and non-bank financial institutions, or in sectors such as commercial real estate. 

“At this moment, in time for the world economy, vigilance is absolutely paramount. 

“We have to be mindful of our duties to them and I want to make a double plea on their behalf: Help them resolve crushing debt burdens, and help ensure that the IMF can continue to support them going forward. 

“On the first, we now have the global sovereign debt roundtable. It is making tangible progress co-chaired by the World Bank, IMF in India as G20. We can group together public and private creditors as well as borrowers first time all of them sitting around the table to accelerate restructuring cases, including those that are covered in the G20 common framework but also those that are not covered by the framework and are pressing. We met yesterday, I was very encouraged by the positive outcomes. 

“First, we agreed to improve information sharing of macroeconomic projections and debt sustainability assessment at an early stage of the debt restructuring process.

This is a breakthrough in bringing together everyone who has to be at the table and find areas where we can reach consensus now and areas of future work. 

“I have spoken about areas of consensus. Now, I want to stress here that we have a clear work stream on compatibility of treatment essentials. Except we have an understanding of compatibility of treatment we cannot achieve timeliness, and we will be stuck in our view whether this is fair or not. 

“We agreed yesterday we have to work much more and concentrate on these initial timelines. We could not reach an agreement yesterday, although the aim was not to reach an agreement. So, what we have concluded was that we have to identify principles for how timelines have been set. 

“We have agreed that there would be case-by-case decisions, but this case-by-case decision will need to be within defined timelines and parameters and that will be the next agenda for us in the next round of our engagement. 

“We have a policy of lending into arrears, we have actually applied this policy in the case of Sri Lanka. What it means is that if a creditor is yet to come with financial assurances, we are not going to hold the country hostage to discredit them. 

“However, there are two issues: the first one is when we lend into arrears for these countries, we are kicking the can down the road. We are not resolving the debt to a sustainable level. There are still one or more creditors that are holding and their issues have to be addressed. 

“Secondly, there is always a risk that the country might opt out after having received a support from the fund to pay this hold-down creditor, creating significantly moral hazards and difficulty to implement the fund programme. 

“It is an option that we will use when we believe that there is no way to do the plan ‘A’ which is to restructure the debt and give the country breathing space to grow. 

“Again, I want to be very clear on that and it is that we will not hesitate to use our policy, even when we think that there is absolutely no chance to reach the desired goal which is to restructure the debt of these countries.”