BY ADVA SALDINGER AND SHABTAI GOLD
FEB. 8, 2022
Should IMF be making money off of countries that are struggling to repay loans?
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IMF levies surcharges, similar to bank penalty fees, on top of normal interest payments and fees for heavily indebted countries. But as debt burdens rise and defaults loom, the question around IMF surcharges is becoming more urgent. This is especially true as the debt crisis coincides with rising interest rates, which will only make repaying those loans more expensive.
“If the IMF interest charges are part of a destabilizing escalation of interest rate and debt servicing charges, that would make it difficult for countries to repay and possibly lead to disorderly debt restructuring, which can cause an enormous amount of losses,” Patrick Honohan, a former governor of the Central Bank of Ireland, tells Shabtai.
Honohan isn’t alone in this belief. Some economists, including Nobel Memorial Prize winner Joseph Stiglitz, want a moratorium on IMF surcharges.
Almost two-thirds of IMF’s lending income is on track to come from these types of fees by fiscal year 2027, according to a recent paper Stiglitz co-authored. The institution’s own accounting shows that this income stream is rising in part because of recent emergency loans. In the previous fiscal year, the total owed to IMF was estimated at about $1.4 billion.
With the World Bank pushing for G-20 nations to take action on the debt crisis, the upcoming finance ministers’ meeting in Indonesia this month is seen as a crucial moment for progress. A recent paper from the Bretton Woods Committee’s Sovereign Debt Working Group argues that transparency is critical — and that the G-20, credit ratings agencies, and international financial institutions need to find common ground for urgent reforms, Shabtai reports.
IMF: Should surcharges be ditched? Some economists and lawmakers think so.
More from the World Bank: China is owed 37% of low-income countries’ debt payments in 2022.
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Cost of pollution
That’s the average loss in gross domestic product across countries in the Middle East and North Africa due to pollution. The World Bank warns that steep economic losses will result from air and water pollution in the region, and it suggests that a shift to a green economy could help spur the private investment needed to create jobs.
MENA: Air and water pollution cost economies 2% in average GDP losses
On the agenda
On Feb. 17 and 18, African Union and European Union leaders will meet in Brussels for a summit to renew and deepen partnership between the two blocs of countries. On the agenda: the construction of a fiber cable connecting Africa and Europe, an expanded role for the EU’s border agency in Africa, and progress on the reallocation of Special Drawing Rights, our colleague Vince Chadwick reports.
Also under consideration is a Global Green Bonds Initiative that would improve demand for green bonds issued by African countries and the supply of projects that could be financed through those instruments. The EU may also consider supporting vaccine manufacturing in African countries and a proposal to create “an enabled environment for Sexual and Reproductive Health and Rights,” Vince reports.
We’re also likely to get more details about the EU’s Global Gateway initiative, an attempt to respond to China’s Belt and Road Initiative and meet African leaders’ frequent calls for greater infrastructure investment.
Battle for Africa: The latest AU-EU summit deliverables
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Breaking records
Last year, the Inter-American Development Bank hit a new record for financing, with $23.4 billion in new funding approvals, commitments, and private sector mobilizations. My colleague Teresa Welsh speaks with IDB President Mauricio Claver-Carone, who tells her he is making the case to shareholders and governors for a capital increase for the bank. The most recent one was in 2010.
IDB is also engaging more with the private sector. The bank created a coalition of company leaders last year — the biggest in its history — that has since quadrupled to 160 members. Claver-Carone said he wants IDB to mobilize corporate investment as a “matchmaker” in the Latin American and Caribbean region.
“We want to be originators: originators of deals, originators of projects that are going to have the highest development impact and have the biggest bang for their buck in the region,” Claver-Carone said. “The only way to do so is literally working at the ground level with all these companies, all these investors, and going out there and finding the best deals.”
Stay tuned for next week, when we’ll bring you an interview with James Scriven, the CEO at the regional development bank’s private sector arm, IDB Invest.
IDB head: $20B in financing should be ‘new normal’ for LatAm
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What we’re reading
The Science Based Targets initiative, a key player in corporate climate plans, comes under scrutiny. [Financial Times]
A new working paper looks at the role of asset managers BlackRock, Vanguard, and State Street in corporate environmental governance. [City Political Economy Research Centre]
Here’s another call for more rigorous standards in ESG investing — this time to evaluate corporate conduct. [Forbes]
A recent report examines IFIs’ COVID-19 response. [Coalition for Human Rights in Development]
This edition of Devex Invested was edited by Tania Karas and produced by Mariane Samson. We hope you’ve enjoyed the read. For any news tips, please get in touch: adva.saldinger@devex.com, shabtai.gold@devex.com
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