Sierra Leone: Funding the recovery of Low-Income Countries (LICs) after COVID required a multifaceted response, according to a paper written by the International Monetary Fund (IMF) staff.
Meeting these additional financing needs they wrote will require a multi-faceted response with three main components. First, ensuring that low-income countries recover fully will require significant support from the international community. Securing adequate worldwide vaccine production and universal distribution at affordable prices will be decisive.
In addition, it will be essential to deploy a comprehensive financial package, including grants and concessional financing, and debt relief where needed. The IMF and multilateral development banks will play a key role in that package.
Second, an ambitious domestic reform agenda is needed for low-income countries to boost competitiveness and potential growth. This includes improving governance and business climate, enhancing domestic revenue mobilization, developing domestic financial markets, and improving economic and financial management.
These reforms they stressed will stimulate the third component of the multifaceted response: fostering the domestic private sector and external private financing.
They however, assured that the IMF will be a full participant in this response, and has already launched several support measures for its low-income members through expanding access to concessional resources under the Poverty Reduction and Growth Trust, including extending access to emergency financing.
From March 2020 to March 2021, about $13 billion has been approved to more than 50 low-income countries. The IMF is also currently reviewing its lending framework to low-income countries, beyond the temporary increase in access limits.
On the proposal for a new allocation of Special Drawing Rights (SDR), support is said to be building among the IMF’s membership for a possible SDR allocation of $650 billion. This they say would help address the long-term global need for reserve assets, and would provide a substantial liquidity boost to all members.
Debt service relief through the Catastrophe Containment and Relief Trust to 29 eligible countries. The recently-approved third tranche covering the period April-October 2021 brings total debt service relief up to $740 million since April 2020. Such relief provides space for poor countries to scale up spending on priority areas during the pandemic.
Supporting a further extension of the G-20 Debt Service Suspension Initiative (DSSI) until end-December 2021. The DSSI delivered US$5.7 billion in debt service relief for 43 countries in 2020 and is expected to deliver up to US$7.3 billion of additional debt service suspension through June 2021 for 45 countries.
“The needs of the poorest countries over the next five years are acute. But they are not out of reach. A strong, coordinated, comprehensive package is needed. This will secure a rapid recovery and transition to a green, digital, and inclusive growth that will accelerate convergence of low-income countries to their advanced economy counterparts.”
ZIJ/14/04/2021