Countries in debt distress such as Zambia and Sri Lanka turning to the International Monetary Fund (IMF) for financial help are facing unprecedented delays to secure bailouts as China and Western economies clash over how to provide debt relief.
IMF funding is often the sole financial lifeline available to countries in a debt crunch, and key to unlocking other financing sources, with delays putting pressure on government finances, companies and populations.
For Zambia, it took 271 days between reaching a $1.3bn staff-level agreement with the IMF — a preliminary financing deal usually agreed during a country visit — and the fund’s executive board signing off, a prerequisite for actual disbursements.
The first African country to default in the Covid-19 pandemic era in 2020, Zambia’s ongoing debt relief negotiations involving China have been closely watched by other countries as a test case for the major emerging market lender.
Though staff agreements can be reached without financing assurances, the IMF board needs them to approve the programme.
These are guarantees that sovereign lenders — and to some extent commercial creditors — will negotiate a restructuring in line with the IMF’s debt sustainability analysis, providing relief and financing when needed.
Sri Lanka has been waiting for 182 days to finalise a bailout after a $2.9bn September staff level deal while Ghana, having defaulted on its overseas debt in December following a preliminary IMF deal, has yet to get board approval 80 days later.
This compares to a median of 55 days it took low- and middle-income countries over the last decade to go from preliminary deal to board sign-off, according to public data from over 80 cases compiled by Reuters.
These delays have been caused by a number of reasons, but debt experts mainly point to the fact that China is still reluctant to offer debt relief in comparable terms with other external creditors.
“They are part of the reason why these negotiations are so painfully slow,” said Kevin Gallagher, director of the Boston University Global Development Policy Center. “It’s not just the Paris Club and a few New York banks anymore.”
Chinese Premier Li Keqiang said on Wednesday the country is willing to “constructively” participate in solving debt problems of relevant countries under a multilateral framework.
But Beijing has always emphasised all creditors should follow the principle of “joint action, fair burden” in debt settlements.
An IMF spokesperson said it was a “very small number of countries” that suffered “significant delays,” acknowledging this was in particular where there was a need to restructure debt owed to official bilateral lenders.
However, the time from staff level agreement to lending approval had remained “broadly consistent for a vast majority of countries,” the spokesperson added.
Besides members of the Paris Club of creditor nations such as the United States, France and Japan, cash-strapped nations now have to rework loans with lenders such as India, Saudi Arabia, South Africa and Kuwait — but first and foremost China.
Beijing is the largest bilateral creditor to developing nations, extending $138bn in new loans between 2010 and 2021, according to World Bank data.
For countries such as Sri Lanka facing shortages of food, fuel and medicines as well as painful reforms to alleviate a debt crisis after years of economic mismanagement, the delays can be devastating.
The war in Ukraine added pressure as global commodity prices soared.
“Sri Lanka going beyond March without an IMF programme will be challenging for us,” said the country’s State Minister of Finance Sehan Semasinghe.
“We need the programme to justify the reforms that need to be made for the economic stabilisation process.”— Reuters