The IMF on Thursday urged advanced economies in the G20 to extend and improve their debt relief initiative, warning that many countries face a dire crisis without the help.
"We may see economic collapse in some countries unless G20 creditors agree to accelerate debt restructurings and suspend debt service while the restructurings are being negotiated," IMF chief Kristalina Georgieva said in a blog, adding that it is critical private creditors also offer relief.
The G20 Debt Service Suspension Initiative (DSSI) expires at the end of the year, and without a renewal, countries would face financial pressure and spending cuts just as new Covid-19 variants are spreading and interest rates are expected to rise, she said.
"Debt challenges are pressing and the need for action is urgent. The recent Omicron variant is a stark reminder that the pandemic will be with us for a while," Georgieva said in the blog co-authored by Ceyla Pazarbasioglu, director of the fund's Strategy, Policy, and Review Department.
Georgieva did not specify which economies faced a crisis, but referred simply to "low-income countries."
Advanced economies in the Group of 20 announced the program last year amid the Covid-19 pandemic, which hit poor countries the hardest, hampering the ability of those governments to service their debt and support their people.
The G20 twice extended the DSSI, but the IMF and World Bank have been urging creditors to do more to help with the burgeoning debt load. There are 73 countries eligible for relief under the program.
The World Bank estimates that debt loads in poor countries surged 12 percent to a record $860 billion in 2020 amid the pandemic, and Georgieva said "about 60 percent of low-income countries are at high risk or already in debt distress."
Given the problems with the debt relief program and the common framework for dealing with private creditors, only three countries so far have applied for relief -- Chad, Ethiopia and Zambia -- and they have faced "significant delays."
The framework has "yet to deliver on its promise. This requires prompt action," she said. She noted that Chad's program is hung up due to the need to restructure a large amount owed to a private company.
And with inflation surging in major economies, central banks are pulling back on stimulus and expected to begin raising interest rates next year, which would increase debt service costs for poor nations and likely would see capital flee those countries.
"No doubt 2022 will be much more challenging with the tightening of international financial conditions on the horizon," Georgieva said.
The IMF is calling for improvements in the program, especially mechanisms to oblige private creditors to participate, which would encourage more poor countries to make use of the DSSI.
In addition, "a comprehensive and sustained debt service payment standstill for the duration of the negotiation would provide relief to the debtor at a time when it is under stress," she said.