Low-Income Countries and the IMF in a Changing World: Financing, Growth and the Path Forward

[00:00:00] Rachel Glennerster: I am Rachel Glennerster and I am President of the Center for Global Development and I wanted to welcome you to this conversation about the IMF and low-income countries and also to the kickoff of our work for a whole research initiative on this topic on IMF and low-income countries. So let me just start by saying why we decided to launch this initiative to begin with. So first of all, at the big picture, we have seen a massive decline in the number of low-income countries which is very good news. So from 2020 the number has fallen from 64 to 25. But what that means is that the countries that are left in this status are facing very strong, difficult, challenging conditions which is why they are still low-income despite many other countries moving on. So does that mean that the IMF should think differently about how to support countries given that low-income countries now are quite a different kind of group than they used to be? Is the IMF providing the kind of support needed to tackle the long-term challenges that these countries face? Are its programs giving countries enough time to tackle these challenges? And second, we face a problem that there was a lot of lending during the COVID era. That was good. Countries needed it. And that's exactly what the IMF was set up to do. Does that mean our online audience has missed the first bit? Okay, good. So as I was saying, during COVID, a lot of low-income countries borrowed and that's exactly what the IMF is set up to do, to respond to shocks of that kind, but that's all coming due now. So suddenly you have a lot of pressure on low-income countries to repay the IMF. So is that the right position now? I mean, obviously when countries borrow, you want them to pay back, but we're now in an era of more shocks that have come, where war, higher food prices, higher oil prices. We have debt rates going up. We have interest rates going up. So is this the right time for the IMF to be getting repaid more than it is lending out? So net reflows, the IMF will be in net reflows within a number of years from low-income countries. So these are some of the questions that Cathy Pattillo will address in a minute. But this general question of is the IMF taking the right role in low-income countries is going to be the topic of this research agenda. So not just the volume of lending, but the quality and nature of the lending, of an IMF engagement with these countries, the structure and objectives of the programs, their policy content, and how the fund is operating in this very difficult political environment. So as I say, Cathy Pattillo is a Senior Fellow at the Center for Global Development and is leading this research effort. And she will describe where she's got to, because this is very much the start of a conversation, and present some of her early findings on the net flows to low-income countries from different sources. So with that, well, let me just say that we are seeking input for this initiative. We're seeking your thoughts and advice and input as we work on this challenging set of questions. And with that, let me introduce Cathy Pattillo to present some of her early findings and set the conversation going.

[00:05:08] Cathy Pattillo: Good afternoon, everyone. Welcome. Thanks so much for coming. Rachel has set up very well the questions. I'd also say an objective of this panel is thinking about the relationship between the IMF and low-income countries, not just the IMF to low-income countries, but the authorities in low-income countries themselves and the difficult challenges that countries are facing now and how they navigate that in the context of the development finance architecture. So it's about both sides of the question. So this presentation is part of this broader CGD project, looking at both IMF financing and how IMF-supported programs can better support really durable macro-stability and growth in low-income countries. And today I'll focus mainly on the financing side. So let me start with a preview of the argument. First, LICs are moving toward net repayment to the IMF, repaying more than they receive. And that would be historically unusual. And it's happening at a time when other external financing is becoming much, much more scarce. And second, the path to that outcome is really shaped by IMF policy choices. And so the question is whether this is the net financial role that the IMF's members see as appropriate now at this juncture. And if not, what would, you know, larger IMF exposure, larger IMF financing need to accomplish in those countries in order to justify the risks? So let's jump in here on the left-hand side chart, which shows the aggregate PRGT net flows to low-income countries. That's disbursements minus debt service. And you can see that exceptional, exceptional wave of lending during and after COVID. And it's now starting to come due and be repaid. And so on current projections, then aggregate flows turn negative around 2030, around $700 to $800 million annually in 2030 and in 2031. But the shift is already sort of more visible at the country level. In 2026, 68 percent of PRGT borrowers look set to be repaying the IMF more than they receive in disbursements. And that's the highest share since at least 2000. So you could say the obvious response, isn't this exactly the way the IMF is supposed to work? IMF is a revolving lender. Countries borrow when their financing needs are high and repay when those needs ease. So net repayment in itself is not a problem. But two facts complicate that interpretation a little bit. First, as you can see on the left, sustained aggregate net flows are actually exceptionally rare historically. Once you strip out debt relief, there have only been a handful of small net negative years since 2000 and never two in a row. And as you can see in the chart, 2006, as reported, would have been a huge net negative flow. But once MDRI debt relief is excluded, then it's, you know, small and positive. So 2030/31 would actually be the first back-to-back years of aggregate net repayment since 2000. The second fact that sort of complicates that interpretation is that low-income country engagement with the IMF actually doesn't follow these kind of discrete, you know, borrow and repay cycles. The typical program user has spent close to two-thirds of its time since 2000 in IMF-supported programs. And 62 percent of those countries have actually spent at least half of their time in an IMF-supported program. So this simple sort of revolving lender story doesn't fully characterize the IMF-LIC relationship and so makes you think then now, what does it mean then about what should be happening going forward? Next, the question is that the timing of this shift matters a great deal. It's happening at a time of much, much tighter external financing for low-income countries. I don't have to tell this audience that. And everyone knows also, you know, the incredible pressures, global pressures and difficulties countries are facing. The IMF's wheel yesterday said that, you know, low-income countries that are net oil importers are the most vulnerable to the Iran war shock. So this chart on the left shows the growing share of countries that are paying some creditor groups more in debt reservice than they're receiving in new disbursements that are, you know, getting negative net transfers. By 2024, that was 68 percent of countries for China, 68 percent of low-income countries had negative net transfers from China, 60 percent had negative net transfers from other bilateral creditors, and around half for private creditors. Other multilaterals have, you know, remained really the most stable source of positive net transfers, which, you know, makes their role, continued role, particularly important as other flows retreat. Of course, you know, low-income countries are not homogeneous. There are higher-income frontier countries with access to international capital markets, and there are very poor, fragile and conflicted states, and lots of countries with all kinds of different circumstances in between. So the aggregate picture then really conceals very different kind of financing pressures. There are some countries that are facing rising IMF debt service at the same time that they're facing these difficult other financing and external conditions, and some of those are among the poorest FCS and countries at high risk of debt distress. So that's why I think this kind of country-level question matters, you know, as much or even more important than the aggregate flows. So where does this leave things for the IMF? The first point is that, you know, that kind of path is not predetermined. There was a reform to the PRGT in 2024. It was historic. It was important. It restored long-run sustainable lending capacity to SDR 2.7 billion a year. Without the reform, that capacity would have really fallen substantially. But that lending envelope is a, you know, a longer-term envelope. It's not a hard annual ceiling. And so commitments went above it during the pandemic. The question now is, you know, could there be circumstances, again, where financing needs are strong enough that it would justify temporarily going above that level? At the country level, when you think about financing, it's shaped, of course, first by countries having a balance of payments need and presenting, you know, strong reforms in a program. But that it's also shaped by the IMF's access policies, safeguards, the IMF's tolerance for risk. And these, together with the financing, are all policy choices for the IMF. So the argument is that a sustained shift toward net repayment at this difficult time then should be a conscious policy choice for the IMF members rather than simply kind of emerging from the existing settings, you know, a little bit by default. So the even more difficult question then, you know, what would a more supportive IMF role look like? It could require greater exposure, greater financing in some LIC programs. And there are risks in both directions of that. Greater financing can weaken incentives for difficult policy adjustment. If a policymaker says, I have, you know, a lot of financing, maybe you don't do all the really tough reforms. A large stock of senior multilateral claims can make other creditors wary, thinking, you know, maybe down the line something is going to go wrong, there's going to be a need for a debt treatment. I'm going to be a junior creditor at the bottom of the pile. So it can potentially weaken the IMF's catalytic role. And there could be a risk that, you know, over time the fund would be drawn into kind of rollover, that it would be harder to say no to a country even though maybe the authority's commitments to real reform is weak. So there are risks on that side. But there are also, you know, big risks on the other side of insufficient financing, particularly again at this difficult time. It can force, you know, really, really sharp and fast adjustment, weakening the space for high return investment, for development spending, with implications for growth, for revenues, and ultimately for repayment capacity. So really greater exposure, thinking about, you know, more, the potential for more lending, that would raise the bar for when that larger financing would be worth the risks. And there would need to be kind of this credible prospect that that support could help achieve more of a durable and decisive boost in macro stability and growth, rather than just kind of incremental small improvements that fix short-term immediate pressures but leave countries kind of coming back and back again and again. Trying to help authorities deliver on that puts a really high premium on effective program design and implementation. How do you do that better? And that, as Rachel mentioned, is going to be the second part of our broader work. There's also kind of a difficult allocation question. Where financing is needed the most, what countries, and where greater IMF exposure could be the most effective in this way, might not point to the same countries. Think about some fragile and conflict-affected states. So big, big challenge there. So we're going to turn next to the panel. Let me leave three questions on the screen, highlight the first two. Rachel already mentioned the first. Is this the right time for the IMF-LIC financial relationship to shift toward net repayment? And second, what would have to change in IMF-supported programs for greater exposure, for more lending, to produce a kind of genuinely durable and decisive boost to stability and growth, and the country's own financing capacity, its ability to generate own resources? So just to come back to where I started, again, first, LICSR. Moving toward net repayment to the IMF, that would be historically unusual, and it would be happening at an unusually difficult time for external financing and external conditions. Second, the path toward that is not predetermined. So the question, again, for the IMF's members is whether this is the appropriate financial role for the IMF at this juncture, not forever and ever, but at this time. And if not, what would larger IMF exposure, larger financing in some programs need to be able to achieve in order to justify the risks of doing that in low-income countries? Thanks very much.

[00:20:50] Rachel Glennerster: Thank you. So we have a great panel to discuss this. So on my right is Honorable Seedy Keita, who is the Minister of Finance and Economic Affairs for the Republic of Gambia. And then after him is Ahmat Jidoud, who is the former Minister of Finance for Niger, and Distinguished Fellow at Asset, our partner think tank on many, much of our work. And then we have Hanan Morsy, who is Deputy Executive Secretary and Chief Economist of the U.N. Economic Commission for Africa. And finally, my predecessor in this role, Masood Ahmed, who is President Emeritus of the Center for Global Development. So Minister, if I could start with you. We've heard about the challenges that countries like yours are facing with these external shocks, you know, the fact that high-income countries have not handled their fiscal policy very well, which is driving up interest rates, which causes, you know, a higher burden on your fiscal, you know, bigger challenges for you, the war that has pushed up oil prices and food prices. You know, you also face the challenge of having significant, already significant debt to the multilateral institutions, including the IMF. And obviously, therefore, upcoming repayments that you need to repay to them. But Cathy also talked about some of the risks in building up too much debt with these, with the IMF and others, because their debt is, you know, somewhat more expensive than maybe other forms of debt or aid, although that's also going down. When do you think is the right time? How do you balance those risks of, you know, borrowing more from the international financial institutions versus knowing that you'll have to repay it later? You know, when is larger borrowing from these institutions the right thing to do?

[00:23:56] Hon. Seedy K.M. Keita: Thank you very much. I think the question, and I thank my co-panelists here, but the question could not have come at a better time, because as we speak, we are preparing our budget for 2027, and we are allocating 30% of our budget servicing the debt. And this moved from 24% last year. So increasingly, we are allocating more to the debt service than health, agriculture, and education combined. These are necessary investments we should be doing in our social sector and building the capital foundation of our country. And this debt comes about through a number of factors. As the crisis we are living through, I call it poly-crisis, as if one is finished, the other one just pops up on a daily basis, on a periodic basis, to the point you don't know how to deal with them. But these are further accentuated by the borrowings that most of our low-income countries are having with institutions like IMF and other multilateral creditors. For a number of factors, not only are they lending us money, but they also give us policy advice, which is very strongly through an IMF program. And that will mean that you will be implementing reforms, which are normally not going to be any different from your own home-grown reforms you would have done on your own. But the rate and the pace at which those reforms and the timeline makes it very, very pressing. One such advice was in the era of COVID. When COVID kicked in, the IMF advised our countries to do the debt suspension initiative. That means that we suspended servicing the principal and only serviced the interest. And most of these debts are denominated in foreign currency. And as the global West are having their own fiscal pressures, interest rates are going up. If interest rates are going up, their currencies are getting stronger against our currencies, and we have a net balance of payment deficit that tends to put our currencies on the downward trend. And we only have resources, our export base is not large. We are largely tax-based economy, so most of our revenues are raised from domestic resources. So with every trend in the dollar, it is a translation of weakening of our currency. And given that we are only able to retrieve, mobilize our own resources, it puts a lot of pressure on our debt service. So what do we do? Because we have a conundrum here. Your debt burden is increasing, not even due to additional borrowing, but even the same stock is increasing in terms of your domestic currency value due to the exchange rate appreciation of the foreign currency, where those particularly funding from IMF and other multilateral creditors. The World Bank and the African Development Bank have really moved a long step further. Now our engagement with them is largely grant-based. As such, they are really investing into the sectors of growth in education, health, agriculture. But because IMF borrowings are supposed to be repaid back, and they are denominated in not even the U.S. dollar alone, but SDR. So it becomes a basket of global Western currencies against which our currencies tend to go down. This puts a lot of burden on us because not only are we not able to invest in our infrastructure space or build a human capital formation, but debt service becomes a mandatory requirement because in terms of your allocation, you pay your salary first and then you pay your debt service. Those are the two things any finance minister will not think twice. So every other thing else comes secondary to that. So the way we are handling that, it puts a lot of pressure. And at one of my conversations with the fund, I said, well, in the market, he who has a greater balance sheet has more capability to manage the risk. You have a deeper and bigger balance sheet than any one of us. Why don't you lend to us in our domestic currency? And you take the currency side of the argument so that our debt will be in our local currency, which is our unempowered. Because at a certain point in The Gambia has been in 2017, the exchange rate of the dollar seed to the dollar was about 50, 50, 53. Today, it's about 73. We're talking about in the space of less than 10 years, exchange rate depreciating by more than 25%. Meanwhile, even if your debt stock is constant, that means a direct translation of the increase on your debt stock. What we have done is to revamp on domestic resource mobilization, increase the tax compliance and tax efficiency so as to grow the earning capacity of government, and also to make our public expenditure more transparent and value for money. We've done reforms in our procurement. We've done reform with our state-owned enterprises so as to bring the whole of government to make the revenue management the central pillar. Because we still have to invest in expenditures related to infrastructure and the social sectors. So I think the fund, while it is providing policy advice, giving us the necessary balance of payment support through their programs, their lendings are not cost-free option. And even when they look at our debt sustainability, they look at it from the interest rate angle. I still am well. In the market, you have three mainly. Market risk is comprised of interest rate and the price risk, or the currency risk. So if you only look at the interest rate risk and look at the exchange rate risk as an adjuster, then you are not looking at our true cost. For me, my true cost is anything that affects my ability to pay. And one of them is exchange rate risk. How can you help me manage that? Why don't you help us get your lending transaction with us in our local currency, then you deal with that? Because our local currency fluctuation should not be much to them, but for us, it's a life and death issue. So these are some of the issues we've been having, and it's a huge challenge. It is adding to our debt stock, and as such, there's no way out. The only way, I think, would be to try to build our own domestic currency, domestic capital market, where we can mobilize funding from our own resources, from our local funds, where there will be no exchange rate risk, and basically nobody defaults in your local currency. So the default risk will be more and more smaller. I think the funds engagement with us should not just be on the lending, but also on the policy advice and institutional support to develop the necessary capital market domestically so that we can raise our own resources using our domestic capital market. This is the issue we have with this. And when you look at the balance sheet of IMF, I think it lends a massive amount of funds during the crisis. Now they are a net recipient, so their balances are growing, while the ones paying have weaker balance sheets now and less ability to service, and I'm sure it's not only Gambia. The amount of debt service for a number of LDCs is quite a high one, and this is a challenge. And the conversation should be, with the reflows going back, do you want to keep your balance sheet growing stronger, or you can now go the way of trying to open the domestic market and either lend in domestic market or support the development of the domestic capital market so that countries like The Gambia can raise our own money. Raising of money in Africa is how you mobilize it. Our pension funds, our central banks, they all are sitting on tons of money, our insurance company. But how to mobilize that for development, this is how I think our engagement with the fund. The fund does not have and cannot have enough money for development, but what they can do is to help build the institutions and the market that is required for us to be able to grow and do our own mobilization of resources for our own development domestically. Thank you.

[00:33:32] Rachel Glennerster: Thank you, Minister. And I'm hearing there that IMF funding is expensive. It requires strong action, and while other people are giving you grants. So maybe the answer is not necessarily more IMF funding, although you will take some of their technical advice. Okay. So let me turn to you, Minister Jidoud, because you, you know, former Minister of Finance in Niger, now doing macro analysis at ASET, the African Center for Economic Transformation. So as you've heard, you know, major challenges, and certainly, you know, this is not a unique problem in Africa. So how do you think about this issue of whether countries should be, you know, whether we should be prompting the IMF to issue more funding, or is it too expensive and the wrong conditionality? So, you know, maybe, maybe countries should be seeking funding elsewhere.

[00:34:55] Ahmat Jidoud: Thank you very much, Rachel. Thank you, Cathy, for inviting us, and hello to all the panelists. I would like to first recognize that I was gifted to be sitting in many positions and allowed me to see things in a different perspective. As I was an economist at the IMF for some years, and then I moved as a Minister of Budget and then Minister of Finance for seven years in Niger, and then currently I'm working with ASET, and particularly with the Future of Development Cooperation Coalition, which you know very well, trying to provide or to propose a recommendation on how we can rebuild the Global Development Cooperation Framework. So I'm seeing myself like in a position, a middle ground position, because yesterday it was IMF and then government, and then now I'm kind of trying to make the link between the two sides. And yes, we are living in a time of very big challenges, which requires us to work together and to listen to every side of the table. And from my experience in Niger and the Fund, I think that the Fund's primary mission is not to finance development, it's not to provide financing for development itself. The Fund mission and the prior mission is to help countries put in place a conducive environment for this investment and development to take place, helping in stabilizing the economy, helping in disciplining the fiscal policies and other economic policies, helping in creating a catalytic environment, as Cathy just mentioned a few minutes ago. And I think for many countries under program, like Niger for example, this has been very successful in creating this catalytic, this leverage by creating a conducive environment given the sound policies we have put in place, we have implemented, but also getting the financing from the private sector, from other multilateral donors and multilateral development banks. And this is what actually has driven growth and has created, like I said, a conducive environment for investment, for creating jobs, but also for driving the economy going forward. But I think there are also some loopholes in the programs, in the frameworks we have seen, and specifically, let me point out two loopholes I have seen, for example, in the DSF, which is the Debt Sustainability Framework, which is really a link where we see how governments are allowed to have some trade-off between growth and debt. And the first thing is that what I see is that the DSF, actually, or the DSF I would say, the League DSF, manages risk, but it doesn't wait returns. Because the question the DSF asks is how much a country can borrow, or is this country able to service this debt? It doesn't ask about what this debt is financing. It's not asking whether this debt is worth it. And this is where, actually, you see that it's not really helping in financing growth. Because a debt which is, for example, contracted to build a road for a country like Niger so that it can have access to the port, is treated as equally as a debt which is going to finance consumption. And even maybe consumption with imported goods, and is going to create a, I mean, to deteriorate the balance of payment and the commercial balance. And this is something that I think is a big loophole in what we have seen in the trade-offs we see, and from most, I am a from most, and this is difficult for the ministers of finance. And a very clear example I've seen in Niger is a very transformational project, which is the pipeline to export crude oil. And we have to struggle a lot with the IMF so as we can get the financing for this project. Because we see it in the DSF, and they treat it as another project that could not have, I mean, where inflows are coming in the future. But then this is being treated now as a very risky debt. So the second loophole, which is more or less related to the first, is this tendency or this kind of [unintelligible]. Because the need, for example, to, when you look at the DSF, you see that, I mean, growth projections are the ones that drive everything, right? That for countries, for example, who borrow now to invest, but with the benefits being ripped off in the future, they are penalized because these debts enter into the DSF but not the returns. So that what you see is that in the short term or in the medium term, they increase the cost of all the other borrowings, but they do not account for the returns, in the future returns of growth in the DSF. But I'm glad to see that the latest review of the DSF or DSF has made some progress in these directions, with the assessment of investment, development and investment in climate, et cetera, et cetera. And this is something that is moving forward. But the other thing, coming back to the growth and also the tradeoffs, is that what we see, and specifically this is going to be even more important in this time as, you know, this concessional financing is dying out, is the fact that the IMF is giving you space for growth with one hand and is taking it with the other hand. Because when you are in a program, the program sets a path for fiscal consolidation. It says what are the reforms you have to put in place for domestic revenue mobilization, tax, et cetera, et cetera, but also what are the efforts you have to do in order to streamline spending. And whatever is the gap, you have to find other donors, including the IMF financing, to fill the gap, multilateral donors, concessional financing, et cetera. But in a time where we are, we see this new normal pattern where ED is going to vanish for sure, and the IMF actually is also being a net receiver of resources, the thing is this is going to make the tradeoff more difficult for the ministers of finance. Mr. Prime Minister, you are the one that is currently having this kind of tradeoffs. And this is going to make it even tougher for them. And what is going to happen is that the cuts are going to fall on investment and capital spending, and this is also going to jeopardize future growth. So I think that there are things to look at into this. And I mean, I don't want to be very long, but I think that what low-income countries are expecting from the IMF is not IMF financing growth. They are expecting IMF to stand ready to help in any especially when it's hardest. They're expecting, you know, this flexibility to help them mobilize the catalytic approach, to help them mobilize resources for investment, for growth, and then being also realistic about what is really debt-related to growth and what is really debt-not-related to growth. So I will stop here before I continue.

[00:43:27] Rachel Glennerster: No, thank you, because that is something that we have been thinking about and looking at CGD, and that's definitely part of Cathy's research agenda, so we will continue to work with you on that, this point that the incentives are wrong because you don't get those flows back from investment into projected future growth. I have to say that when I've raised that point with colleagues from the IMF, they have pointed out that often, or people who've studied the IMF, they're saying, well, actually, you know, growth projections of the IMF are nearly always, you know, over-optimistic, and therefore, in a sense, we're putting too much emphasis on the idea that this investment is going to lead to future growth. So it's more a question, if you want to get the incentives right, of saying, well, you know, borrowing that goes straight into consumption, we should, you know, reduce our growth rates in the future, but I take the point that the differential between the two is very important. And just on the debt sustainability frameworks, I mean, this sets the framework for the IMF lending, but it also sets the framework for a lot of other lending, so even if IMF lending is expensive, relatively, it still, you know, drains what governments can do, so it's very important to get that debt sustainability framework correct. So Hanan, turning to you, you have a recent piece in Project Syndicate that makes the point that multilateral financial architecture is pro-cyclical, i.e. you know, they lend when things are good, and they cut back when things are bad, which is exactly the opposite of what these institutions are meant to do and what they were set up to do. And this is, you know, you make the point also that we've talked about already that pulling back this pandemic financing at this point would be very counter-cyclical. So what do you think is the solution? Why did we get into this mess, and what's the solution?

[00:46:09] Hanan Morsy: Thank you. Definitely, the role, particularly for the IMF, is to, you know, be counter-cyclical, particularly at a global level. What happened and what we've seen, for example, during the COVID pandemic was actually, you know, critical in terms of supporting countries to respond to the pandemic, availing emergency financing, doing it in a way and structuring it in a way that was helpful, you know, do the spending, keep the receipts, and, you know, relieve that liquidity crunch. So that was a good example. However, I think what perhaps the system fails to recognize is that we've moved from the old model of episodic shocks to, you know, a new norm of continuous global shocks. And that requires a rethinking of the design of what we have currently. So one of the things, for example, that would be, I believe, would not be the right move is what was being discussed about suspending the, you know, the emergency financing facility, including the rapid credit facility, and so on, rollback of the limits, when we've seen the recent shocks, including the impact of the crisis in the Middle East, and its impact on many of the developing countries. So, you know, making sure that this, you know, liquidity buffers and emergency financing facilities are there when countries need it. If countries have already done very difficult reforms and advances, but they are continuously hit by shocks, they haven't caused they, you know, they suffer from the consequences, there should be a way by which, you know, the global financial safety nets are designed to provide that liquidity and bridging, which is exactly what, you know, the Bretton Woods institutions are designed for. So it would be very important to do that, but also to reactivate some of the other useful facilities that we've seen the CCRT, you know, the catastrophe containment facility, and relief trust. This was also very useful, because it supported providing much needed that relief for low income, fragile countries. So having these facilities, rather than, you know, kind of rolling back on them, actually making sure that they continue and they continue to serve this purpose during, you know, global shocks and continuous exhaustion as one would be very important. Things like, you know, the food and energy shock window that was, you know, at the World Bank, having that, I think also, one of the I think one of the good measures that are instruments that the fund introduced was the resilience and sustainability trust. It's a huge shift, especially for someone who worked at the IMF for 10 years, from just the short term financing to thinking long term structural. That's huge. And that's exactly the type of thing. Programs don't just happen over, you know, two to three years, they take time to see results and it's good to have programs that tackle the root causes rather than just, you know, tackle, you know, when you have to go to, you know, the emergency room and need to just, you know, deal with this at emergency room, but rather have something that deals with the root causes, not just the symptoms. And that's why, you know, doing more of the programs that have a short term that have a long term view, supported by structural reforms and over time, addressing the root causes of these balance of payments are key. So expanding and leveraging more things like resilience and sustainability trust, particularly in playing a catalytic role in attracting and crowding in, you know, private investments and private investment flows. I think this is one of the areas that the fund do need to do a lot more. So tackling these issues are important, but also another area is if you look, for example, at the surcharges that the IMF, you know, but and we understand there are reasons that you do this trying to balance incentives. But I think the incentives are wrong when you have it when interest rates are very high, that you are now charging multiples of, you know, these interest rates at the time when you're supposed to be supporting countries. So there has to be a kind of a ceiling on how much this, you know, that base that surcharge should be. If interest rates are already very high globally, you cannot just continue to charge multiples. That's another area that will be very important. Actually, I was happy that Minister Keita mentioned the issue of more focus on local currency lending. I think particularly for the IMF, that means more work on developing local capital markets. The World Bank have started to, you know, expand and look into local currency financing. That's good, but we need more work on it. I wanted to perhaps, you know, challenge one thing that was said earlier, which is that the IMF takes into account growth, and they have been optimistic, so that's enough. So I'm going to quote something from work that I've been, you know, honored and privileged to be part of from the G20 expert panel, which together with Masood and Hanan here, we're part of. In that report, the report quotes that based on studies of IFC equity investments in infrastructure projects in Africa, what they found is that the returns were six times S&P 500. So I don't think that the growth of the region really captured the level of the returns of these investments, just based on data. So this is the type of thing that should be incorporated, that level of knowledge and, you know, information when we are looking at what the debt is financing. So if you have a track record that that debt, you know, financing can bring that level of returns that should be incorporated, and hence, just including the growth will not do it, because it's actually still under massively underestimating. So I think that would be really important to differentiate, to reflect the quality based on data. I'll stop here. Thank you.

[00:54:17] Rachel Glennerster: You know, I think, and again, I was quoting what people were saying when I was talking to them, but I think the point is that you need to differentiate, but it's, but when you differentiate, that might not necessarily lead to a higher growth projection, but it's more about getting the incentives within the government budget to spend the money on the most effective ways. So Masood, you know, you've seen the data about this being a bad time for the IMF to become a net extractor of funds, but also we've heard, you know, because the world is facing a big shock, but then we've also heard that we're in a world where you face a shock. So how do you square that circle in the sense of, you know, if these countries are always going to be facing shocks, then when is the period when they can?

[00:55:21] Masood Ahmed: I think that's really a good question in the sense that I go back to one of Cathy's charts, and I think the reality is that our rhetoric about the IMF's role in low-income countries is not a reflection of the actual role that it has played in these countries. I think, I can't remember the exact numbers, but I think 62% of countries have been in a program relationship for more than half the time that they've been eligible. So if you look at the IMF's role in emerging markets in middle-income countries, it is this periodic intervention when they get hit by a crisis, and then you basically help them get over that, and the IMF pulls out, and then they go and get back into a sort of normal track. Even in the middle-income countries, there are a few that keep coming back for program support. I guess a different kind of issue as to why it is that they keep having the same problem every five years, and I know one of them relatively well, but there are also others that Hanan knows well. But if you look at low-income countries, I think then the design has been for the IMF to be more engaged on an ongoing basis. So the question really is, not so much are we going back to the norm for the IMF to now start pulling money out, but is this one of those rare moments when the IMF should be pulling money out, if you look at the long sweep? The long sweep is that the IMF doesn't pull money out on the aggregate. Now, I do say that aggregates are not as helpful as looking at it country by country. I think that's the point that has been made. And so one does need to go down a granular level to say for each country, what is it that they face? And the twin combination of the context becoming much harder for them, because they're dealing with all these additional challenges that you've already, I think, well described, but also that every other source of funding is pulling money out. So bilateral creditors, China's the largest, used to be a big source of net inflows. Now it's actually a source of net outflows. Private sector, not putting money in in many countries, and where it is putting it in at rates that are unaffordable. So really, where are you going to get aid flows? And that's where I do worry a little bit with this grants are cheaper and IMF is expensive, is compared to what? So the IMF is certainly more expensive than it used to be, and it is more expensive than, say, IDA money. But you know, I think with 5% interest rates for the US 10 years and European rates being in that market, I think we're going to be in a high interest rate environment for the next decade. And so the real trade off is going to be long term stable money at 5%, or six or, you know, as opposed to relying on the market where you're going to end up with eight or nine, unless someone is willing to buy down the rates. And that's where I'm not convinced who in the market today is going to be doing the big buy downs. And IDA is still relying on a mixture that enables them to bring the rates down. But with each replenishment, that's going to become edge up a little bit. So, so I think why my simple answer is look, I think, over the next three, five years, this country is going to be hit by a lot of shocks that which was not even shocks, it's just the reality in which they are. And the other lenders and providers of funding are pulling back. So this is not the moment for the IMF to choose to be in one of its rare periods, when it also is pulling money out of these countries. And I would just say they need to at least maintain net positive transfers in the countries where there is the willingness to do the kind of macro framing that makes sense from being the underpinnings for growth.

[01:00:07] Rachel Glennerster: Great, thank you. And now, turn to the audience for questions.

[01:00:14] Audience Member: Thank you very much. Yeah, first of all, just one thing to add to Masood's point, I remember doing this exercise for Mali, and between 1995, and basically this year, there have only been five years where the IMF has not dispersed. So only five years, otherwise, it's been continuous disbursement. My question is regarding the replenishment of the PRGT. And more, more generally, the financing of the PRGT. There have been creative, innovative, or esoteric solutions that have been floated for quite a long time. One of one of these solutions is the sale of basically gold sales proceeds. It is something that comes back frequently, and especially right now, given gold prices. I know that this is a very, very difficult proposition. It has faced both enthusiasm and also very, you know, brutal opposition. And I was wondering what the state of this particular policy issue is.

[01:01:22] Audience Member: Thank you. Hannah Wengerider from Development Reimagined. I wanted to, the Minister mentioned, Honorable Minister mentioned the issue of domestic debt, and I think it has come up with others in the conversation. My concern about the IMF and World Bank working in the area of domestic debt is that it becomes another area for IMF and World Bank to effectively try to put pressure on countries to reform. And I think with that, when we saw, for instance, Ghana, their first, what they had to do in their restructuring was to cut domestic debt fundamentally. That feels like it was scoring an own goal. How to cross that bridge, because obviously domestic, building up domestic capability, domestic capital markets, and using domestic debt is a good thing to do fundamentally. But at the same time, it is more expensive than international finance, because often it's on lending in any case. And then this question of utilizing it to derive debt relief, and rather than the international system doing so, it does. I just wondered whether any reaction to that from the panel. Thank you.

[01:02:58] Rachel Glennerster: Let me take one more, and then we'll go to the panel.

[01:03:01] Audience Member: Thank you. I mean, building up a little bit on what Masood was saying, what does it make sense for the IMF to do when everybody else is withdrawing? It relates to your third question. I mean, if the IMF increases its disbursement, it's only going to help others withdraw even faster. And the result is a rise in senior debt. And we're seeing that. As senior debt rises, then instead of that lending being catalytic, it becomes anti-catalytic, because that just becomes risky. The figures are already very worrisome. I forgot the precise figures, but I think what you call LIC, which includes a bunch of LMICs as well, so the IDA countries, I think there are about 50 countries where more than 50% of their external debt is senior. If I remember correctly, about 22 countries for which more than 75% of their debt are senior. So it seems to me the implication is for these countries that do need liquidity now because they're in the middle of the shock, they do need more IMF funding. But then the IMF needs to ask the other creditors to share the burden. And not just the official creditors, but in some cases, the private sector creditors as well. That's called floor relief. And it's feasible, more or less, with the existing rules, maybe they need some tweaking. Exceptional access rules allow that even though it's not used. And the new LIC DSF recognizes the liquidity as well. So I'll press further than you on number three and say, yes, we need more support. But in some cases, we need also burden sharing by all the other creditors to stay in as a precondition for the fund to actually help the country.

[01:05:02] Rachel Glennerster: Okay, so we have a number of tough questions there. Minister, you can choose which one you take. But maybe the domestic debt, as you talked about the importance of that. What are their risks?

[01:05:21] Hon. Seedy K.M. Keita: Yeah, thank you very much. Based on the question on the domestic debt, the issue with the domestic debt is this will not require IMF or the World Bank to be the lead. We need to grow our domestic debt market on our own terms. Because domestic debt should be one where it's based on your local market. All that they need to do is to support in establishing it. And there should be no cohesion here. Because for an effective market, there should be a willing buyer and a willing seller. I know capital markets will function well when it is pushed from behind. Because market forces are the best determinants of outcomes. So we don't expect the IMF or the World Bank to come in and say, you must do this, you must do this for a functioning domestic debt market. I think the prerequisite for a functioning domestic market are transparent financial reporting environment, predictability in terms of policies, rule of law, property rights, and all the way we tell for a functioning market. And this should be homegrown, home-led, and internally managed. If they will come to our domestic market also and give us the torchlight to say, do it this way, then we're losing the plot. It is high time we develop our capacity. And I think that's where I see the Fund helping more. Because one example, in the case of The Gambia, our domestic resources have moved from 11 billion in 2022 to 25 billion, thanks to the reforms that we have implemented. So what we will also do more is to introduce innovative financing, such as securitization of cash flow producing assets, such as toll roads or bridges, whereby you don't have to wait for a long time before you can get funding, but rather you can securitize those cash flows, you get the payment upfront, and use the proceeds, which will be basically interest-free for you as a government, and do more capital investment in building your economic investments. This is how I see it. But definitely I don't think this is a space for them to come and put conditionality in the domestic market. That's not the intention. Thank you.

[01:07:56] Rachel Glennerster: I guess there's the worry about whether they will come in afterwards.

[01:08:06] Ahmat Jidoud: Yes, I just wanted to say one word on this domestic debt issue. I mean, there are two news. One is good, one is bad. The good news, starting from the good, is that I think that the new reform for the DSF is accounting for these issues of domestic debt. But the bad news is for regional countries, regional unions. For example, the WAEMU countries. You will see, for example, in the reformed DSF that debt from, I mean, for example, Niger issuing bonds and bought by Senegalese or Cote d'Ivoire, this is within the same region. This is the same currency, as you said, I mean developing local currency bonds. But in the DSF, this is going to be treated as external debt. I think it doesn't make sense. It's really like we are pushing with the IMF here to develop local markets, to develop our financial and regional markets. But at the same time here, we are creating obstacles for this market not to be developed. And this is something that needs to be addressed, I think, for our countries to be able to mobilize domestic capital, additional to the other reforms we should do. The other thing, the second thing, is about the preferred credit status. This is something also that is creating an obstacle for domestic market to be developed. Because this is, there is money sitting in our countries, as the minister says, there is a lot of money sitting there. But we are giving bad incentives, negative incentives to these institutional investors to come and buy our bonds, invest in domestic projects, because they see examples. They see where we are pushing and dissolving this preferred credit status to our multilateral development institutions in Africa. And this is something that needs to be addressed as well. Thank you.

[01:10:05] Rachel Glennerster: Thanks. And then, do you want to take?

[01:10:09] Hanan Morsy: I actually wanted, the one I wanted to comment on was this issue, perhaps a couple of things from a, you know, a different perspective. I guess, you know, the question from Hannah relates to the issue of debt restructuring. You need to restructure debt. And, you know, historically, when in these cases, what you tended to restructure was the external debt, the FX debt, not the local currency one. And what's special in the Ghana case is that, that included the domestic debt. And I think it's an issue that really needs to be looked at very carefully, for the reason that it affects mainly the domestic banking sector. And it's very hard to build, you know, the credibility of that sector. It takes ages to build the credibility, it takes moments to destroy it. So if you start to, you know, hit that, start to actually destabilize it and make the depositors think twice before they use it, you're actually pushing them into more dollarization, into avoiding the banking sector. And it's absolutely counter, you know, development and stability to go in that route. So I think it's an issue that needs to be tackled in terms of how we think about restructuring, and what should be included and should be not. For, you know, kind of looking at financial stability, at credibility, at a depositor confidence. So that's one area. But the IMF can help from the other side, in actually developing and deepening the local capital markets, making it more liquid, you know, more like, you know, attracting more investments. And this is exactly developing the products and the tools. That's the type of support that you want, because this is actually what will make the current institutional investors, you know, wealth funds in the continent and pensions, be able to actually channel these resources domestically and regionally. So I think this is the area where they can help a lot more, but hopefully, not through including it and restructuring. Thank you.

[01:12:48] Rachel Glennerster: Masood, do you want to take on gold sales?

[01:12:50] Masood Ahmed: Just a very quick response on gold sales, which is for financing the PRGT, you need two kinds of money, you need money that they use to lend, and then you need, which can be loans from members, it's not difficult to raise that. And then you need money which helps to bring the cost of PRGT down to subsidize the rate. And for that, you need grants from one source or the other. One of those potentially is from selling a small part of the iron as gold, which I think is now worth half a billion dollars. Sorry, $500 billion. It's five times what it used to be. And I think the problem with that idea is, it's going to be very hard to get any kind of political agreement on selling gold. When you sell it, it actually belongs to the membership. So even if you get agreement on selling the gold, you may not get agreement on using it for the subsidy of the PRGT, it may just end up being used for other things. So I don't anticipate it's going to happen soon. And just to say to Ishaq, I think Ishaq's point is absolutely right. But you know, that is what we're doing now. If you look at many countries, lending from multilaterals is being used to bail out the exit of other predators. But it's not enough lending to do more than just finance the bailout. And in fact, the real question is, do you accept that bailout as the reality of life? And then provide additional funding to finance investments and growth? Or do you actually make the additional funding couple that we're trying to put some commitment by the creditors to sustain their exposure. And the first session we had in the same room today, in the morning was actually a debt roundtable, where the discussion was around a proposal that has been put together, which would do exactly what you're saying, which were to have a three part commitment, where the creditors would agree to stay in, the new money would come in to finance investment, and all based on the country's putting together an ambitious strategy. So I think you're right to pinpoint the problem. And hopefully, one can move to a more structured way of dealing with it.

[01:15:18] Rachel Glennerster: Well, thank you to our panelists. And thank you to the audience for questions. These questions will keep going, but and our research program will keep going. So if you have ideas and input. So thank you, everyone.