The COVID-19 crisis built up indebtedness and increased external financing needs in low-income countries

Abstract

The shock of the COVID-19 pandemic and the associated deterioration in the economic outlook has exacerbated solvency concerns and increased the risks of debt restructurings in low-income countries (LICs). Financing conditions for many LICs still remain tight while the external financing needs are increasing. The International Monetary Fund (IMF) estimates that LICs would need a total of $450 billion in investments in the medium-term to respond the COVID-19 crisis and to accelerate growth to reach the pre-pandemic convergence path with advanced economies. How to fill the vast financing gap in LICs is a central on-going discussion in the international fora. A solution will require a combination of international and domestic measures to increase the availability of external financing, enhance domestic revenue mobilization and address debt sustainability issues.