As the world’s finance ministers and central bankers gathered in Marrakech for the annual meetings of the International Monetary Fund last week, they fretted that an already weak global economy might buckle further under “higher-for-longer” interest rates. But they should also have looked closely at how escalating borrowing costs are deepening the woes of the IMF itself.
The IMF is the port of call for countries in debt distress to seek bailouts and get back on their feet. But the institution is beset by geopolitics. Chinese creditor institutions, including the government, have become major competitors to the IMF, but they have been reluctant to allow debt cuts, which would mean they would take losses. This makes it harder for the financial institution to facilitate debt restructurings because all other creditors are more hesitant to agree to a write-down if a key creditor is unwilling to share the burden.
The competition from China and other bilateral creditors has also been intensifying: countries in distress are increasingly turning to them, especially China, whose overseas bailouts correspond to 20% of total IMF lending over the past decade, and 40 % in the three years to 2021.
About the author
Sander Tordoir
Sander Tordoir is a senior economist at the Centre for European Reform, a think tank devoted to making the European Union work better and strengthening its role in the world. The opinion piece draws from his CER research with Tobias Krahnke. Find their research at: https://www.cer.eu/publications/archive/policy-brief/2023/imf-lending-too-expensive
