IMF bailouts hit record as global economic outlook worsens

The International Monetary Fund’s lending to economically troubled countries hit a record high, as the world’s lender of last resort grapples with simultaneous crises that have pushed at least five countries into default, and more are expected to follow.

The pandemic, the Russian attack on Ukraine and the sharp rise in global interest rates have forced dozens of countries to seek help from the International Monetary Fund. A Financial Times analysis of IMF data shows that at the end of August the fund had disbursed $140 billion in loans in 44 separate programmes.

The number, which is expected to grow further in the coming months as borrowing costs rise, is already higher than the amount of credit outstanding at the end of 2020 and 2021, when levels reached annual records.

Vertical chart of loans disbursed, showing that IMF lending is at an all-time high

Experts predict that large increases in interest rates by central banks in major markets will raise borrowing costs around the world and risk causing a severe recession. Some analysts say the IMF’s lending capacity may soon stretch to its limits, as poor countries not subject to the international debt market are forced to turn to the Fund for support.

Total IMF commitments, including loans agreed but not yet disbursed, are more than $268 billion.

Kevin Gallagher of Boston University’s Center for Global Development Policy warned that “too many countries” could receive IMF support without “hunting the IMF’s balance sheet”.

Gallagher is co-author of A Report He warned this week that 55 of the world’s poorest countries face $436 billion in debt payments between 2022 and 2028, with about $61 billion due this year and in 2023, and about $70 billion in 2024.

The fund played down the concerns. Its overall commitments are “still a small part of [almost] A trillion dollars could be available, said Bekas Joshi, division head in the IMF’s Department of Strategy, Policy and Review. “The volume of lending is rising in proportion to the increased risks faced by countries that turn to us for support.”

The IMF is negotiating with several countries about support packages that would further increase its overall commitments.

Zambia and Sri Lanka – which have been bogged down in the outbreak along with Lebanon, Russia and Suriname – are negotiating IMF bailout plans as part of their debt restructuring efforts. Ghana, Egypt and Tunisia are in early talks to obtain similar support.

The International Monetary Fund approved a $1.1 billion rescue plan for Pakistan at the end of August. Argentina is set to receive $3.9 billion in the next few weeks as part of its $41 billion programme.

Under IMF rules, member states can usually receive support equal to only up to 145 percent of their IMF quota, or contribution, roughly in line with each country’s share of the global economy.

This would leave $370 billion available to low- and middle-income countries out of the IMF’s total lending capacity of $940 billion.

But this limit is often exceeded. Argentina’s support package — approved in March as a debt restructuring from the International Monetary Fund’s record $50 billion rescue plan for 2018 — is worth more than 10 times its share. Analysts at Goldman Sachs expect Egypt to soon receive a $15 billion package, six times its share.

The IMF is making limited additions to its lending capacity. It traditionally lends from two major facilities, the so-called Public Resource Account and the Poverty Alleviation and Growth Credit, which lend at low interest rates to low-income countries.

It recently created a Resilience and Sustainability Fund, designed to help countries deal with systemic challenges like climate change, which Joshi said has received $40 billion in financing commitments, against a target of $45 billion.

A new window for a food shock to help countries affected by rising food costs is likely to be approved by the International Monetary Fund’s board of directors ahead of its annual meetings next month.

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