Risk lights flashing red at IMF

The line of hopefuls outside the Washington headquarters of the world's financial firefighter is looking busy.

Countries from multiple regions are again tapping the International Monetary Fund (IMF) for loans as their economies teeter. Each case has its differences, but generally it's a combination of high inflation, dwindling foreign exchange reserves, rising borrowing costs and stuttering growth. Often with a dose of political turmoil thrown on top.

The IMF, part of the framework set up in the dying days of World War II to create greater global stability, has at times been controversial, given conditions attached to its programmes including big spending cuts. But alongside China the IMF is arguably a lender of last resort and, as a barometer of risk and frailty, it's blinking red.

Pakistan, facing political turmoil and now deadly floods, just secured a loan of about $1.1 billion to avert an imminent default. Sri Lanka is close to finalizing nearly $3 billion, while Zambia won IMF board approval yesterday for $1.3 billion. Egypt is in talks for a new loan as investors fret about a broader default.

Six months after Russia invaded, Ukraine is desperate for IMF money and yet may not be able to get any, given the rule that any borrower must have a clear path for repayment.

El Salvador, Ghana, Tunisia, Kenya and Ecuador are also in the list of most vulnerable. About 60% of low-income countries are at high risk of or already in debt distress, and about 20 emerging markets have debt that's trading at distressed levels, IMF's First Deputy Managing Director Gita Gopinath told Bloomberg last week.  

Soaring energy and food prices are adding to the woes for countries buried by debt incurred during the pandemic. Pressures from living costs have already triggered bouts of social and political instability and the odds are rising of a wave of bond defaults.

So quick fixes are needed. There are concerns about contagion for more robust economies with strikes already paralysing British transport networks.

But the world also finds itself in cycles of crisis in part because politicians with an eye on the electoral calendar lurch from one band-aid to another without undertaking the painful but necessary structural reforms that so many economies need in the longer term.

And countries may want to be careful what they wish for: Having taken years to navigate a $44 billion program, Argentina is now in the bind of needing to slash spending and cut subsidies even as utility bills soar.