Emerging Economies Face Liquidity Shortfall Post-Sovereign Defaults

The post-COVID era has seen emerging economies like Ghana, Sri Lanka, and Zambia struggle with sovereign defaults, shifting to a liquidity shortfall. Concerns about development and climate change have intensified. Solutions, such as innovative liquidity support, are discussed at the IMF World Bank meetings amidst persistent global financial challenges.

The wave of sovereign defaults post-COVID has peaked for countries like Ghana, Sri Lanka, and Zambia, leading to challenging years of debt restructuring.

The IMF and other institutions warn that emerging economies now face a dangerous liquidity shortfall, which threatens development, hinders climate change mitigation, and undermines trust in governments and Western institutions. This issue is a key topic at the IMF World Bank autumn meetings in Washington, D.C.

Amid constrained budgets and continuous crises, innovative solutions for providing short-term liquidity are being sought. However, these solutions may not yet have the scale or speed needed to address the growing financial stress experienced by many nations. Recent estimates indicate that negative net financial flows have increased, with multilateral financial support failing to keep pace with rising costs.

(With inputs from agencies.)