Nigeria may benefit as IMF, World Bank plan debt reduction for IDA countries

Given the urgency of the debt crisis, Nigeria may benefit as the International Monetary Fund (IMF) and World Bank have proposed to undertake a joint action plan on debt reduction for the most indebted International Development Association (IDA) countries.

“We’ll discuss it this week with Governors during our Annual Meetings. It’s urgent to make rapid progress on a framework because the risk of disorderly defaults is rising,” David Malpass, World Bank Group president said in his remarks at the G20 Finance Ministers and Central Bank Governors Meeting in Washington D.C.

Nigeria is a member of IDA. The IDA has 173 member countries which pay contributions every three years as replenishments of its capital.

The association assesses countries based on their per capita income, lack of access to private capital markets, and policy performance in implementing pro-growth and anti-poverty economic or social reforms.

Malpass said with the strong support of its shareholders, IDA has frontloaded IDA-19 resources to the fullest possible extent as a key part of the surge in our commitments this fiscal year. However, IDA lending would have to decline in the next two years even though the latest forecasts, including those just announced by the IMF, suggest that the reduction in economic activity will extend well into subsequent years.

“We are proposing to IDA Deputies later this month a $25 billion supplemental COVID Emergency Financing Package,” he said.

He also announced the Board’s approval of a package of up to $12 billion to expand its fast-track COVID response for the purchase and distribution of COVID-19 vaccines, tests and treatments.

According to him, the tendency in past debt crises is for countries in debt distress to go through a series of ineffective debt reschedulings that leaves them weaker. Creditors may eventually allow them to get to a debt reduction process, but at a tremendous cost to the poor.

He noted that soon after the Spring meetings in April, the Bank was able to launch health emergency programs in 111 countries and begin a surge in its grants and highly concessional lending that will reach the limits of its capital structure and commitment authority.

“As part of this effort, we expect to provide over $50 billion in grants or highly concessional credits by June 2021, helping provide large net positive flows to the poorest and most fragile countries and people,” Malpass said.

Also in March, he said the G20 endorsed a vital debt relief program for the poorest countries, giving people a ray of hope. The Debt Service Suspension Initiative (DSSI) helped increase fiscal resources for over 40 countries and created more transparency on the overwhelming debt burden. “This week, we published more granular data on debtors and creditors which will help identify problems and work toward sustainability”.

The World Bank’s latest economic and poverty data show that desperate inequality is being caused by the COVID pandemic and economic shutdowns. The recession in advanced economies is less severe than had been feared, but in most developing economies, it has become a depression, especially for the poorest. Extreme poverty may rise by 150 million by 2021.