IMF and World Bank Emergency Loans Hit Record High Due to 'Pandemic Impact'... What About Interest Rate Increases?

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] In the aftermath of the COVID-19 pandemic, emergency loans from the International Monetary Fund (IMF) and the World Bank (WB) have reached record highs, while interest rate hikes by major countries are tightening the noose around the borrowing poor countries, raising urgent calls for countermeasures.

The Wall Street Journal (WSJ) reported on the 10th (local time) that IMF and World Bank officials are scheduled to hold their annual meetings this week in Washington DC, USA, and are being asked to support countries facing these issues and to build capacity to respond to future emergencies.

According to the report, the IMF's outstanding loan balance reached a record $135 billion (about 192.9 trillion KRW) at the end of last month. This represents a 45% increase compared to 2019 and more than double the amount in 2017. The IMF has pledged to provide an additional $258 billion to 93 countries since the pandemic and $90 billion to 16 countries following Russia's invasion of Ukraine.

The World Bank's loan volume also reached a record $104 billion as of September, marking a 53% increase since 2019.

WSJ predicted that more countries might reach out to the IMF and World Bank. Due to Russia's invasion of Ukraine, energy and food prices have surged, severely impacting food supplies in poor countries. The sharp interest rate hikes implemented by the U.S. Federal Reserve (Fed) this year have increased the cost burden for countries with dollar-denominated loans, and many emerging market central banks are raising their own benchmark interest rates to prevent currency depreciation and rising import prices.

Central banks in emerging countries such as Mexico and Hungary recently expressed concerns that the Fed's continued rate hikes would weaken their currencies and make attracting investment more difficult. WSJ reported that it is already difficult to obtain loans from the private market in emerging markets. The IMF stated that among the more than 70 low-income countries currently suspending debt repayments, over 60% are either unable to meet their financial obligations or face high risks related to debt problems.

Kenneth Rogoff, a Harvard University economics professor and former chief economist of the IMF, said, "At this point, emerging countries do not face a major crisis and still have some capacity, but as we move toward a turbulent period, they will feel the burden. If China, the UK, or another major country suddenly turns to the IMF, funds will become insufficient."

Danny Leipziger, a George Washington University professor with experience working at the World Bank, said, "Now, with the possibility of a global recession and many countries facing payment capacity issues, they (the IMF and World Bank) need to return to their core functions rather than just handing out money unconditionally," adding, "They are the lender of last resort."

This content was produced with the assistance of AI translation services.