IMF lending to economically troubled countries has hit a record high as the world’s lender of last resort battles simultaneous crises that have pushed at least five countries into default, with more expected to follow.
The pandemic, Russia’s attack on Ukraine and a sharp rise in global interest rates have forced dozens of countries to seek help from the IMF. A Financial Times analysis of IMF data shows that the volume of loans disbursed by the fund amounted to $140 billion in 44 separate programs at the end of August.
The number, which is expected to rise further in the coming months amid rising borrowing costs, is already higher than the level of outstanding loans in late 2020 and 2021, when levels hit yearly highs.
Experts believe that further large interest rate hikes by the central banks of the major markets will drive up borrowing costs worldwide and pose the risk of a deep recession. Some analysts say the IMF’s lending capacity may soon be stretched to the limit as poor countries locked out of the international debt market are forced to turn to the fund for support.
Total IMF commitments, including loans agreed but not yet disbursed, already exceed $268 billion.
Kevin Gallagher of Boston University’s Global Development Policy Center warned that “only a limited number of countries” can receive IMF support without “destroying the IMF’s balance sheet.”
Gallagher co-authored a report this week that warns that 55 of the world’s poorest countries face $436 billion in debt repayments between 2022 and 2028, with about $61 billion this year and 2023 and nearly $70 billion due in 2024.
The fund downplayed the concerns. His total commitments are “still a fraction of that [almost] $1 trillion that could be available,” said Bikas Joshi, department head in the IMF’s Strategy, Policy, and Review Division. “The levels of lending are increasing in line with the increased risks faced by the countries that are turning to us for assistance.”
The IMF is negotiating bailout packages with several countries that would further increase its overall commitment.
Zambia and Sri Lanka – both of which defaulted in the pandemic along with Lebanon, Russia and Suriname – are negotiating IMF bailouts as part of efforts to restructure their debt. Ghana, Egypt and Tunisia are in early talks for similar support.
The IMF approved a US$1.1 billion bailout for Pakistan in late August; Argentina will receive $3.9 billion over the next few weeks as part of its $41 billion program.
Normally, under IMF rules, member countries can only receive assistance up to 145 percent of their IMF quota or holding, which roughly corresponds to each country’s share of the world economy.
That would free up $370 billion out of the IMF’s total lending capacity of about $940 billion to low- and middle-income countries.
But this limit is often exceeded. Argentina’s bailout — approved in March as a debt restructuring from its record $50 billion IMF bailout in 2018 — is more than 10 times its quota. Goldman Sachs analysts expect Egypt to soon receive a $15 billion package, almost six times its quota.
The IMF is expanding its lending capacity to a limited extent. Traditionally, it lends through two main facilities, called the General Resource Account and the Poverty Reduction and Growth Trust, which lends to low-income countries at lower interest rates.
She recently established a Resilience and Sustainability Trust to help countries deal with systemic challenges like climate change, which Joshi said has received $40 billion in funding commitments versus a target of $45 billion.
A new food shock window to help countries hit by rising food costs is likely to be approved by the IMF’s Board of Directors ahead of its annual meeting next month.