Despite record-high debt levels and low growth prospects, the 2024 Annual Meetings of the International Monetary Fund (IMF) and World Bank Group achieved little concrete progress on debt. Nonetheless, discussions underscored the urgent need for innovative solutions – and momentum for effective debt relief appears to be building. Here’s a look at the key takeaways.
by Arabella Wintermayr (Editor) & Sarah Ribbert (Project Coordinator)
Dear Reader,
The 2024 Annual Meetings of the International Monetary Fund (IMF) and the World Bank Group unfolded against a backdrop of bleak forecasts characterized by low growth and high debt levels. The IMF warns that public debt, already at a historic high, is set to rise further – a severe situation that Managing Director Kristalina Georgieva described as an “unforgiving combination” in her Curtain Raiser speech.
Together with high-interest payments, Emerging Markets and Developing Economies (EMDEs) suffer from narrow fiscal space. In Washington, Georgieva also cautioned that military conflicts, protectionism, and geopolitical tensions hinder the prospects of the world economy further. In response, the institutions advocated for fiscal reforms and domestic resource mobilization as solutions to stimulate growth, along with increased lending.
Yet, this approach ignores the severe consequences of austerity, which often fuels political instability rather than stabilizing economies. The experience of Kenya, where budget cuts and tax increases have triggered political unrest, emphasizes the dangerous aspects of this approach, which has failed time and again throughout history.
Economic Stagnation Amid Soaring Debt and Climate Shocks
According to the IMF’s latest forecasts, global growth is expected to reach 3.1% in five years, which is at best a mediocre trend compared to the pre-pandemic average. With bond yields higher than projected growth rates, EMDEs cannot rely on capital markets to roll over or issue new debt without jeopardizing their debt sustainability. What is more, these challenging economic prospects will inhibit EMDEs‘ ability to mobilize investments necessary to achieve the goals set out in the United Nations 2030 Agenda for Sustainable Development and the Paris Agreement. Recent research shows that an estimated 47 of 66 economically vulnerable EMDEs with a total population of over 1.11 billion people will face insolvency problems in the next five years if they seek to ramp up investment to meet climate and development goals.
African countries are facing particularly critical challenges, with an acute debt crisis exacerbated by climate shocks. A new policy brief by the Debt Relief for a Green and Inclusive Recovery (DRGR) Project, released ahead of the Annual Meetings, argues that, without addressing the debt crisis, African countries will be trapped in a vicious cycle of climate impacts leading to an effective ‘default on development,’ as well as chronic underinvestment and political instability.
Unlocking Africa’s potential for green growth is crucial for any sustainable solution to the climate crisis. As the Project’s Co-Chairs Bogolo Kenewendo and Patrick Njoroge argue in a recent op-ed in Project Syndicate, the international community must therefore take a coordinated and comprehensive approach to providing debt relief to these countries, so that they have the fiscal space to make key investments.
Global Sovereign Debt Roundtable: Short-term Measures with Long-term Gaps
Alongside the Meetings, the Global Sovereign Debt Roundtable – led by the IMF, the World Bank, and Brazil as G20 Presidency – released its third Co-Chairs report, which found that solvency risks appear “broadly contained,” but that many low-income countries and some emerging markets face severe liquidity challenges.
However, more than increasing liquidity is required – while it can alleviate the immediate fiscal pressure, it will not solve the deep-rooted debt problems that hinder green growth and climate finance. According to the DRGR Project‘s research, achieving the UN Sustainable Development Goals and climate goals requires substantial debt relief for at least 34 African countries.
Despite the G20 and Global Sovereign Debt Roundtable’s highlighting of “resolved” Common Framework cases, specific outcomes for countries like Chad, Ghana and Zambia remain insufficient. While Chad received no debt relief and even accelerated its repayment schedule, debt restructurings for other countries were minimal in terms of debt haircuts, lacked essential shock buffers and benefited bondholders excessively compared to bilateral creditors. Those cases highlight the need for further more comprehensive reforms.
Progress on Surcharges, but Issues Remain
Nonetheless, a noteworthy outcome of this year‘s Annual Meetings was the decision to reduce the IMF surcharges after a thorough review. Currently, the IMF imposes additional interest on countries facing severe debt distress and requiring more extensive, longer-term loans, which further increases financial strain.
Managing Director Georgieva announced a reform package that is expected to lower IMF borrowing costs for members by about US$1.2 billion annually, reduce payments on the margin of charges and surcharges on average by 36 percent, and lower the number of countries facing surcharges from 20 to 13 by 2026.
While affected nations and civil society had hoped for a full elimination of surcharges, this partial relief marks a partial success in their campaign for more supportive IMF policies.
V20’s Call for Climate-Resilient Debt Clauses and Debt Relief
At the 13th Ministerial Dialogue of the Vulnerable Twenty (V20) Finance Ministers, leaders renewed their call for debt relief to address unsustainable debt burdens and improve climate finance access.
Their communiqué emphasized the need for debt relief, disaster support, and climate finance, advocating for the IMF to adopt Climate Resilient Debt Clauses in its financing. The World Bank has taken early steps in this direction, with 12 countries — mainly in the Caribbean and Pacific —signed up. To support global resilience against climate shocks, the IMF should urgently pursue this path.
In addition, the V20 communiqué underscored the urgent need for a debt resolution framework that accounts for the evolving landscape of creditors, expands eligibility to include a wider range of countries, and provides debt relief aligned with climate resilience and development investment needs. Reforming Debt Sustainability Analyses (DSAs) to prioritize growth, climate resilience, and development-enhancing investments over austerity was also highlighted as crucial.
Debt Reform Momentum Builds Towards 2025
While the Annual Meetings achieved little substantive progress on debt, South African President Cyril Ramaphosa has designated debt reform as a top priority for South Africa’s impending G20 presidency, set to commence in December. With Uganda steering the G77 and the African Union’s G20 membership, the continent’s nations are uniquely positioned to spearhead meaningful debt reform initiatives.
Furthermore, Pope Francis has declared 2025 a Jubilee Year with the theme “Pilgrims of Hope,” urging wealthier nations to cancel the debts of lower-income countries—not out of “generosity”, but as a matter of “justice”. Multi-faith organizations have rallied around this call for debt relief, positioned to play a crucial role in amplifying global momentum toward meaningful change in 2025.
Thanks for reading, and until next time.
Drop us a line with your thoughts: ribbert@boell.de