Zambia offers valuable lessons to world at Spring Meetings

KABANDA CHULU
Washington, DC
INTERNATIONAL Monetary Fund (IMF) Managing Director Kristalina Georgieva says the global economy must build on lessons learned from Zambia to improve the debt restructuring process whose debt repayments are most painful in low-income countries.
Giving an outlook for the global economy and policy priorities ahead of this week’s official launch of the IMF Spring Meetings, Ms Georgieva said the world economy is more resilient than many predicted and it is tempting to breathe a sigh of relief since a global recession and a period of stagflation has been avoided.
“But there are still plenty of things to worry about. The global environment has become more challenging with geopolitical tensions increasing the risks of fragmentation of the world economy. And as we learned over the past few years, we operate in a world in which we must expect the unexpected.
“The sobering reality is global economic activity is weak by historical standards. Prospects for growth have been slowing since the global financial crisis. Inflation is not fully defeated. Fiscal buffers have been depleted.
And debt is up, posing a major challenge to public finances in many countries. In advanced economies, excluding the USA, interest payments on public debt will average about five percent of government revenues this year.
But the cost of servicing debt is most painful in low-income countries.
“Their interest payments are set to average about 14 percent of government revenue. For most countries, prospects of a soft landing and strong labour markets mean there is no better time to act… to reach sustainable debt levels and build stronger buffers to cope with future shocks.
“For some, delay is simply not an option, so consolidation must start now to avoid tipping into debt distress. And for the handful of countries already in debt distress, restructuring may be necessary. The G20 Common Framework can help. Zambia recently finalised its agreement with bondholders, complementing the restructuring with official bilateral creditors – bravo! And we must build on lessons learned to improve the debt restructuring process,” she said.
She said during the ongoing Spring Meetings, the IMF will again convene its Global Sovereign Debt Roundtable.
“Our goal is to bring further clarity on ‘comparability of treatment’ among different creditor groups and to establish clear and predictable timelines for debt restructuring. For all countries, rich and poor, fiscal prudence is hard. This is especially true in a year with a record number of elections and at a time of high anxiety due to exceptional uncertainty and years of shocks.
“In fact, our forecasts show deficits will still be too high to stabilise debt in over one third of advanced and emerging economies, and in more than one
quarter of low-income countries.
This is why we advocate for adopting credible mediumterm fiscal frameworks as the ultimate ‘good policy’ choice for countries. We also recommend more focus on closing tax loopholes, strengthening tax collection, and improving the quality of public spending. Fiscal strength allows countries to support the most vulnerable parts of society and to invest in a better future,” Ms Georgieva said.
She challenged central banks to bring back price stability by dealing decisively with inflation and debt; and promote economic transformation to boost productivity, inclusion, and sustainable growth.
“This is their (central banks’) task, many of whom are carefully calibrating this important policy choice… when to cut interest rates and by how much. We have seen what good policy can achieve since inflation peaked in mid-2022. In the final quarter of 2023, headline inflation for advanced economies was 2.3 percent, down from 9.5 percent just 18 months earlier. For the
median emerging market and developing economy, inflation declined to 4.1 percent.
“We expect the trend to continue in 2024, creating the conditions for major advanced economy with central banks to begin cutting rates in the second half of the year. But the pace and timing of the monetary pivot will vary. Some central banks have already begun to loosen, mostly in emerging markets where inflation was tackled early. But elsewhere, primarily in advanced economies, they are still holding off for now. They must carefully calibrate their decisions to incoming data.
“On this final stretch, it is doubly important that central banks uphold their independence. As we know, policy credibility is vital in the fight to restore price stability.
Where necessary, policy-makers must resist calls for early interest rate cuts. Premature easing could see new inflation surprises that may even necessitate a further bout of monetary tightening.
On the other side, delaying too long could pour cold water on economic activity,” said Ms Georgieva.