By using this site, you agree to the Privacy Policy and Terms of Use.
Accept
Newsunplug KenyaNewsunplug KenyaNewsunplug Kenya
  • News
    • Metro
    • Politics
    • Business
  • Entertainment
  • Lifestyle
  • Sports
  • Tech
  • Spotify
Reading: Cash scarcity may replace the wave of defaults in underdeveloped countries when it peaks.
Share
Notification Show More
Font ResizerAa
Newsunplug KenyaNewsunplug Kenya
Font ResizerAa
  • News
  • Entertainment
  • Lifestyle
  • Sports
  • Tech
  • Spotify
  • News
    • Metro
    • Politics
    • Business
  • Entertainment
  • Lifestyle
  • Sports
  • Tech
  • Spotify
Have an existing account? Sign In
Follow US
© 2022 Foxiz News Network. Ruby Design Company. All Rights Reserved.
Newsunplug Kenya > Blog > Business > Cash scarcity may replace the wave of defaults in underdeveloped countries when it peaks.
Business

Cash scarcity may replace the wave of defaults in underdeveloped countries when it peaks.

Ivy Irungu
Last updated: October 21, 2024 7:29 am
Ivy Irungu 7 months ago
Share
SHARE

The post-COVID wave of sovereign defaults, which has affected countries like Ghana, Sri Lanka, and Zambia, has finally subsided, following years of tough debt restructuring. However, the International Monetary Fund (IMF) and others are concerned that many emerging economies now face a dangerous liquidity shortage. This shortage threatens to stall development, hinder climate change efforts, and increase distrust in governments and Western institutions.

At the IMF-World Bank autumn meetings in Washington, D.C., this week, the issue of liquidity shortfalls is a central topic, especially as Western countries grow more reluctant to provide financial support abroad. “It’s a challenge in the sense that for many, debt service has grown, borrowing has become more expensive, and external sources (have become) less certain,” said Christian Libralato, portfolio manager with RBC BlueBay.

The U.S. Treasury’s top economic diplomat has stressed the need for new ways to offer short-term liquidity support to low- and middle-income countries to prevent debt crises. The Global Sovereign Debt Roundtable, which includes countries, private lenders, the World Bank, and the G20, is also addressing the issue, with a meeting scheduled in Washington on Wednesday.

READ MORE  Cocoa Price Hits Record High As El Niño Hits Crops

Vera Songwe, chair of the Liquidity and Sustainability Facility, which aims to reduce debt costs for Africa, said the current solutions lack the necessary scale and speed. “Countries are avoiding… education, health, and infrastructure expenditures to service their debt,” she said, adding, “Even in the advanced economies… there are stresses in the system.”

Data from the ONE Campaign, a non-profit advocacy group, revealed that in 2022, 26 countries, including Angola, Brazil, Nigeria, and Pakistan, paid more to service external debts than they received in new external finance. Many of these countries had gained access to bond borrowing a decade ago, leading to large payments just as global interest rates surged, making refinancing unaffordable.

“The IMF-led global financial safety net is simply not deep enough anymore,” said Ishak Diwan, research director at the Finance for Development Lab. He predicted that net negative transfers for 2023 and 2024 would be worse than previously anticipated, as fresh funding from the IMF and World Bank hasn’t offset rising costs.

While the World Bank plans to increase its lending capacity by $30 billion over 10 years, and the IMF has reduced surcharges to save the most overstretched borrowers $1.2 billion annually, concerns remain. However, some bankers believe countries are regaining access to markets, alleviating cash flow concerns. “I don’t think there’s a limitation on access,” said Stefan Weiler, head of CEEMEA debt at JPMorgan, noting that bond issuance in Europe, the Middle East, and Africa could hit a record $275-$300 billion this year.

READ MORE  Double blow for motorists as Epra ignores levy cuts

Still, borrowing costs remain high. Kenya recently borrowed at an unsustainable rate of over 10% to repay a maturing dollar bond. “Kenyans keep on complaining about ‘we don’t have money in our pockets.’ That in a sense is just saying that we have challenges with liquidity in the economy,” Finance Minister John Mbadi explained.

China’s reduced lending has also worsened the situation for emerging countries, turning what was once a major cash inflow into a net negative flow for those repaying old debts.

Development banks are trying to maximize lending, with the Inter-American Development Bank and the Africa Development Bank campaigning for countries to donate their IMF reserve assets, known as “special drawing rights.” They claim every $1 donated could generate $8 in lending. However, the World Bank is still pushing Western countries to increase contributions, despite cuts in foreign aid by France and the U.K. and financial pressures on key donors like Japan.

“The mix is toxic for developing nations,” warned Diwan. “We see protests from Kenya to Nigeria to elsewhere. It’s a very dangerous situation. We’re losing the whole global south at this stage.”

READ MORE  Female staff at BAT Kenya paid more in most job groups

You Might Also Like

Treasury sets cash, hiring limits in spending shocker

Cash continues to reign despite demonetisation, Covid bumps

Equity bars TransCentury from Sh500m new cash

StanChart profit rallies to Sh6.9 billion

President Ruto Urges Global Collaboration On Green Investments

Share This Article
Facebook Twitter Email Print
Previous Article North Korea defeats the Junior Starlets in the U-17 World Cup
Next Article Philippine Court jails 17 militants for life for resort kidnappings carried out 24 years ago
about us

We influence 20 million users and is the number one business and technology news network on the planet.

Recent Posts

  • Elon Musk is leaving the Trump administration after leading effort to slash federal government
  • President Ruto begins Homa Bay tour ahead of Madaraka Day
  • Transfer: Romano reveals Chelsea’s decision on signing Emanuel Emegha
  • “I don’t consider myself an icon” – Janet Jackson stuns fans during emotional AMA speech
  • Shock as man kills father-in-law, injures estranged wife in Makueni

Recent Comments

No comments to show.
Newsunplug KenyaNewsunplug Kenya
© Newsunplug Kenya. All Rights Reserved.
Welcome Back!

Sign in to your account

Username or Email Address
Password

Lost your password?