© Reuters. A man walks into IMF HQ2 during the IMF and World Bank’s 2019 Annual Spring Meetings, in Washington, U.S. April 13, 2019. REUTERS/James Lawler Duggan
LONDON (Reuters) – The annual IMF/World Bank meetings in Washington D.C. from Monday to Saturday will include talks on a number of emerging markets squeezed by rising inflation and borrowing costs against a backdrop of slowing global growth.
The economic hit from Russia’s invasion of Ukraine has added to pressures that surfaced during the COVID-19 pandemic and has led many smaller developing economies to turn to the International Monetary Fund in recent months for help.
The IMF has approved programmes or financing facilities for 10 countries since the start of the Ukraine war on Feb. 24 worth a combined $77 billion, London-based Tellimer estimates.
This excludes emergency financing under the rapid credit facility (RCF) and rapid financing instrument (RFI) facilities, which countries such as Ukraine and Tonga have tapped. The fund also reached staff-level agreements on new facilities for four other countries.
Below are more details on what these countries are hoping for and what can be expected.
Since Russia’s invasion began, Ukraine has been scrambling to secure billions of dollars to plug a $5 billion-a-month fiscal shortfall and shore up its economy, which is expected to contract 35% in 2022.
On Friday, the IMF said its executive board approved Kyiv’s request for $1.3 billion in emergency funding through a Rapid Financing Instrument. The funds will come from a new emergency lending program to address food shortages approved by the IMF board in September. This is on top of $1.4 billion the IMF has provided to Ukraine since the start of the war.
Ukrainian officials are pressing for non-emergency funds under a full-fledged IMF lending program, which could come at a later stage though its size is unclear. Oleg Ustenko, a senior economic adviser to President Volodymyr Zelenskiy, said an IMF loan of $5 billion over 18 months could anchor a larger package of $15-$20 billion from other creditors. Former central bank governor Kyrylo Shevchenko said in July that Kyiv hoped for a $15-$20 billion IMF programme before year-end.
Facing a near double-digit economic slump, severe shortages of goods from fertilisers to fuel, and amid political turmoil, Sri Lanka defaulted on its foreign debt for the first time in its modern history earlier this year.
In September, it reached a staff level agreement with the IMF for a loan of about $2.9 billion, which Colombo expects to be approved by the fund’s board by year-end. This approval is a key step for countries to secure financing from the Washington-based lender.
However, the country still has to figure out how to restructure its heavy debt load before funds can be disbursed, and its heavy exposure to Chinese lending could complicate matters.
The first African country to default during the COVID-19 era, Zambia is seen as a litmus test for the Common Framework – a G20 initiative set up to ensure a smooth debt negotiation process for poorer countries hit by pandemic strains. Progress so far has been slow.
Debt relief negotiations between Zambia and its creditors are progressing, with the southern African country telling bondholders last week that they needed to accept a 49% reduction in the present value of the debt that is slated for restructuring.
The IMF’s debt reduction targets have been a point of contention for Zambia’s bondholders, some of whom have said they would not accept such big losses.
The country has been in economic meltdown amid a political vacuum lasting years. In April, the IMF and Lebanon reached a staff-level agreement on a $3 billion loan program, but this was contingent on enactment of a range of economic reforms, including addressing unrealized losses in Lebanon’s banking system.
However, slow progress, including what the IMF views as “key deficiencies”, has raised questions about whether Lebanon has the political will to meet key conditions for a program.
Political signs look challenging: President Michel Aoun leaves office on Oct. 31 with no agreement on who should replace him, while the government has been operating in a caretaker capacity since the May election due to divisions over a new cabinet.
Devastating floods have rocked the economically strained country and concerns are rising over the health of Pakistan’s economy as foreign exchange reserves run low, the local currency weakens and inflation runs at decades-high levels despite the resumption of an IMF funding programme in August.
Receiving tranches of the $6 billion, 39-month programme that Pakistan entered into in 2019 depends on reform progress.
New Finance Minister Ishaq Dar’s pledge to strengthen the currency and decision to slash fuel prices puts him at odds with IMF demands, however.
The fund has said policy discussions, including how to target support to those affected by the floods while maintaining macroeconomic stability, will commence in coming weeks after a damage assessment report becomes available.
Ghana U-turned over its engagement with the IMF in July in the wake of street protests, a depreciating currency and foreign investors ditching its bonds, and the country now seeks a programme from the fund.
On Friday, IMF staff said talks with Ghana’s government about a potential loan programme had been constructive but more work was needed on a debt-sustainability analysis. Ghana does not yet have a staff-level agreement.
A source with knowledge of the matter told Reuters in August that an eventual agreement between Ghana and the IMF will likely consist of $3 billion in financing over a three-year period and contain elements of both Extended Credit Facility (ECF) and Extended Fund Facility (EFF) programmes.
A major grain importer that depends heavily on tourism revenue, Egypt has experienced a double whammy from COVID-19 and soaring food prices with no current IMF programme in place.
Cairo is seeking a new round of support from the fund, which has told the government it needs to make “decisive progress” on fiscal and structural reform.
TUNISIA, MALAWI, SERBIA
Tunisia, Malawi and Serbia are three smaller economies where pre-existing vulnerabilities have been exacerbated by recent global shocks.
Tunisia, which is experiencing its worst financial crisis and seeks to secure an IMF loan to save public finances from collapse, said in mid-September it expected to reach a $2-$4 billion three-year deal in the coming weeks.
IMF managing director Kristalina Georgieva said earlier this month the fund was discussing a programme with Malawi, which is in a “very difficult situation”.
Serbia, which currently has a non-financial and advisory agreement with the fund, is seeking a stand-by deal with the IMF to help cope with crises stemming from the war in Ukraine, according to an official.