The International Monetary Fund’s executive board has approved the extension of $115 million in debt relief to 25 eligible low-income countries from January 11 to April 13 next year in an effort to help them ride out pandemic-induced headwinds.
Approval of the fifth and final tranche of debt service relief from the Catastrophe Containment and Relief Trust (CCRT) brings the total two-year Covid-related debt relief since April 2020 to $964m, the Washington-based lender said in a statement. The four previous tranches were approved on April 13, 2020, October 2, 2020, and April 1 and October 6 this year.
“This helps free up scarce financial resources for vital health, social and economic support to mitigate the impact of the Covid-19 pandemic,” the fund said.
The damage from the Covid-19 pandemic has been greater than that from the 2008-2009 global financial crisis, most notably in Africa and South Asia, according to the UN Conference on Trade and Development. Renewed international support is needed for developing countries facing the threat of a “lost decade” amid an uneven global economic recovery, the fund said in September.
The recovery from the Covid-19 pandemic remains “hobbled” and the world economy could sustain as much as $5.3 trillion in losses over the next five years if the vaccine divide is not reduced, the IMF said.
Global debt soared to $226tn last year, the largest one-year debt surge since the Second World War. Global debt rose by 28 percentage points to 256 per cent of gross domestic product in 2020, according to the lender's latest update of its Global Debt Database.
In March 2020, at the start of the pandemic, Kristalina Georgieva, the IMF's managing director, began an urgent fundraising effort to raise $1.4 billion in grants to help the CCRT provide debt relief for up to a maximum of two years, while leaving the trust sufficiently funded for future needs.
So far, donors have pledged contributions totalling about $852m. These donors included the EU, the UK, Japan, Germany, France, the Netherlands, Spain, Switzerland, Norway, Singapore, Greece, China, Mexico, the Philippines, Sweden, Bulgaria, Luxembourg, Malta and Indonesia, the IMF said.
The fund’s executive directors said that CCRT grants for debt service relief “have helped its poorest and most vulnerable members to free up resources to tackle the pandemic and its repercussions”.
However, they said that total grant pledges received to date are short of the cost of the full two-year Covid-related debt service relief and well short of the $1.4bn fundraising target.
The approval of the fifth tranche will severely reduce the CCRT’s pre-Covid cash buffer and potentially limit its capacity to provide relief in future emergencies, the directors said. However, there is a compelling case for approval of the tranche in light of the continuing human and economic toll of the pandemic, the fund said.
The directors also agreed on the urgent need for continued fundraising efforts to address the CCRT’s underfunding, according to the statement.