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Emerging markets financing needs estimated at 14% of GDP, debt to reach 73% of GDP by 2026: IMF

Okamato said that 60 percent of debt issued in emerging markets after January 2020 has ended up on domestic banks’ balance sheets, which is a concerning matter

Doaa A.Moneim , Thursday 10 Jun 2021
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Emerging Markets’ gross financing needs remain high amid the ongoing pandemic, estimated at 14 percent of GDP, with growing sovereign-banks risks in such markets, according to Geoffrey Okamato, the first deputy managing director of the International Monetary Fund (IMF).

Okamato’s comments came during his participation in the 2021 Public Debt Management Forum organised by the Debt Management Facility (DMF).

DMF is a multi-donor trust fund administered by the World Bank (WB) and jointly implemented by the WB and the IMF, providing expert advice on public debt management to 86 developing countries.

Okamato said that 60 percent of debt issued in emerging markets after January 2020 has ended up on domestic banks’ balance sheets, which is a concerning matter.

He expounded that emerging market debt is projected to record an average level of 73 percent of GDP by 2026, adding that debt managers must keep the confidence of the market as they manage large volumes of new issuances and rollovers.

“In order to do this, strong debt management practices and robust investor relations frameworks will be key,” said Okamato.

Additionally, debt transparency — especially in the ongoing uncertain times — is also important, according to Okamato.

“A lack of transparency increases uncertainty, risk, and borrowing costs. If creditors are not able to determine what a country owes, to whom, and on what terms, creditors cannot make informed decisions. And in a world of increased debt risks, this could be the difference between maintaining and losing market access. The benefits to full transparency can be significant as well,” Okamato explained.

He added that a research published recently by the IMF shows that increased fiscal and debt transparency can more than pay for itself by meaningfully lowering bond spreads for emerging markets, and critically important during these uncertain times, it also increases foreign investors’ willingness to hold emerging markets’ sovereign debt.

Moreover, the ongoing challenging time is an opportunity for debt managers to tap to pave the way towards a more sustainable and equitable future, as we all work together to exit from the pandemic and return to strong, sustainable, and balanced growth.

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