STOCK Gita Gopinath
Gita Gopinath, the Chief Economist of the International Monetary Fund. Image Credit: AP

London: More countries are likely to seek debt relief as a stronger dollar makes repayments tougher, and the program that rich nations have to help poorer ones needs to be faster and broader, the International Monetary Fund’s deputy chief said.

About 60 per cent of low-income countries are at high risk of or already in debt distress, and about 20 emerging markets have debt that’s trading at distressed levels, First Deputy Managing Director Gita Gopinath said in an interview.

“We will likely see more countries needing debt relief,” she said.

Surging prices have unleashed a series of interest-rate increases worldwide by central banks, led by the Federal Reserve’s aggressive moves, which has supercharged the dollar. Meanwhile, developing nations have amassed a quarter-trillion dollar pile of distressed debt that threatens to create a historic cascade of defaults.

“Depreciation of emerging-market currencies relative to the dollar has inflationary consequences,” Gopinath said. “That’s making monetary policy for them much more challenging at this time and there are countries that have borrowed in dollars, this makes it difficult for them to repay.”

The worsening debt burden comes after the expiration in December of the so-called Common Framework adopted by the Group of 20 to suspend or revamp debt repayments by low-income countries during the pandemic. The framework incorporates the Paris Club of mostly rich creditor countries as well as China, which isn’t a member, but is the world’s biggest official bilateral lender.

“A lot more speedy action is needed, and the scope of the framework has to be expanded to middle-income countries,” Gopinath said.

US inflation

The US is likely to experience higher inflation for some time, and the top economic job is to ease price growth and not cut rates too soon, the IMF deputy chief said.

"We are in a period where inflation is likely to be high for a while, at least for another year or two," said Gopinath. "The economic priority is to bring down inflation and not prematurely loosen policy."

In his keynote speech Friday, Fed Chair Jerome Powell warned that policy rates must rise and then stay high for some time, echoing a series of statements earlier in the day from his colleagues that rates must become restrictive until prices begin to cool.

"What was great was that he came out as being firm and resolute about bringing inflation down to target, making sure inflation expectations don't get de-anchored," Gopinath said.

The IMF's deputy said it's too early to say that global inflation has peaked, and that the fund is concerned about cost-of-living crises for lower-income nations spurred by high food and energy costs.