$11.3 billion of IMF Covid-19 money being used for debt service, group says | International Monetary Fund (IMF)

The International Monetary Fund allowed some of the world’s poorest countries to use nearly £9bn of Covid-19 rescue funds to pay private sector lenders in breach of its own rules, an anti-corona campaign group says prominent poverty.

Troubled countries in sub-Saharan Africa, Latin America and parts of Asia who entered the crisis with high debt levels used IMF funds earmarked for health budgets and food imports on loan interest payments, the Jubilee Debt Campaign said.

In a report ahead of a meeting of G20 finance ministers this weekend, the group said private lenders should be forced to cut loan repayments as the price of bailout funds to prevent poor countries from finding themselves caught in a cycle of debt.

G20 finance ministers, including UK Chancellor Rishi Sunak, are due to discuss in their online meeting how to reduce the debt of developing countries and therefore increase the level of IMF support for vital services .

According to its own rules, IMF must refuse to lend funds to countries it believes have unsustainable debt levels unless private sector lenders agree to take a financial “haircut” that reduces the size of outstanding loans.

Tim Jones, head of policy at the Jubilee Debt Campaign, said 28 countries at high risk of default had received $11.3bn (£8.9bn) which would be used to meet debt commitments. private sector debt.

He said IMF financing effectively bailed out private lenders by allowing poor countries to maintain their payments.

Last year, the level of spending on debt repayment in the Global South rose to 14.1% of government revenue, the highest level since 2003, and a 110% increase since 2010, a said Jones.

Debt servicing in Kenya and Ethiopia reached up to 50% of government revenue last year after debt and capital repayments fell due from infrastructure projects built over the previous decade .

The IMF said that in many cases it avoids requiring recipient countries to default on their private debts because “in such circumstances, this would only precipitate a sudden loss of access to much-needed external financing and prevent economic recovery”.

Adding that the private sector is a vital source of funds, he said: “As the economy recovers and market conditions improve, repayments to the IMF are being made in part through new inflows from private creditors. “.

Gerry Rice, its chief spokesman, said: “Without IMF support, countries would often have cut other spending in order to continue to meet their external debt obligations, sometimes including to the private sector, which which would have compromised their ability to mitigate the impact of the pandemic. Our overriding goal right now is to save lives and livelihoods. »

He said it was complicated to help indebted countries deal with serious external payments problems. “That sometimes means dealing with private sector bonds and without the country going into default, which would lead to a whole host of other problems.”

Tim Jones, policy manager for the Jubilee Debt Campaign, said: “We’re not saying all IMF funds are repaying private sector debt, but some are. The IMF and the G20 must force private lenders to restructure debts so that more public funds can save lives rather than pay for private profits.

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