Daily Brief: Life-Or-Debt IMF Loans Hit An All-Time High

Daily Brief: Life-Or-Debt IMF Loans Hit An All-Time High

over 1 year ago3 mins

Data out this weekend showed that the International Monetary Fund (IMF) is lending more money to hard-up countries than ever before.

What does this mean?

The IMF is kind of like a bank for countries, but it’s a bank that few nations get excited about dealing with. As “the world’s lender of last resort”, it’s a worst-case-scenario safety net that countries can rely on when their economies are – well – going to hell in a handcart. Calling in the IMF, then, is a kind of SOS flare that can spook investors and hit a country’s reputation – but the combined forces of the pandemic, the war in Ukraine, and the sharp rise in global interest rates have pushed at least five countries into default and forced dozens more into the IMF’s arms. No wonder, then, that the organization had a record-breaking $140 billion out in loans at the end of last month.

IMF bailouts hit high

Why should I care?

Zooming in: Downhill from here.

This could just be the beginning. Experts think that greater interest rate hikes could push even more countries into dire economic straits, and with 55 of the world’s poorest countries already due to repay almost half a trillion dollars of debt by 2028, the IMF could find its resources stretched pretty thin over the next few years. That might be why some economists are keen to remind us that the IMF’s pockets are only so deep and the day could come when it can no longer dole out emergency checks.

The bigger picture: The outlook’s pretty cheerless.

The OECD isn’t optimistic about the global economy: the organization said on Monday that it expects just 2.2% growth next year, down from a 2.8% forecast in June. That means 2023’s global output is now projected to be a cool $2.8 trillion lower than had been forecasted before war broke out – a sum equal to the entire economy of France. (Zut alors!)

OECD forecast

Keep reading for our next story...

GBP Takes A Pound-ing

GBP image

The pound sterling fell to an all-time low versus the US dollar on Monday.

What does this mean?

Investors weren’t impressed when the British government unveiled a package of tax cuts late last week – but anyone hoping they’d do a U-turn over the weekend will have been sorely disappointed: since Friday, the government has doubled down on its stance and declared that there’s even “more to come”. That was not what most investors wanted to hear: many worry that the moves could make inflation worse – and with borrowing costs rising, the decision to take on even more debt is particularly risky. The result: investors flocked to the exits on Monday, sending the pound plunging nearly 5% versus the dollar, to trade as low as $1.035.

Pound vs dollar

Why should I care?

For markets: Confidence falls further.

At first the pound made up much of its losses, but that wasn’t because any good news broke. See, the currency looked so weak that it sparked rumors the Bank of England (BoE), which raised rates just last week, would have to take emergency action to stabilize it. So when the BoE announced later on Monday that it had no plans to make emergency hikes, the news hit the currency market with a thud: within minutes, the pound was in free fall once again, dropping a whole two cents against the dollar.

The bigger picture: Even more inflation.

When your currency’s in free fall, it’s bad to be a net importer – that is, a country that imports more than it exports. Unfortunately that’s exactly what the UK is – meaning that foreign goods will probably get more and more expensive for Brits. And “goods getting more and more expensive” is a layman’s way of saying – you guessed it – even more inflation.

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