(Bloomberg) -- The Biden administration is set to unveil a plan that would offer fresh financing to developing nations that face cash shortages, with the goal of keeping them from plunging into debt crises.
The proposal will be announced by Jay Shambaugh, the US Treasury undersecretary for international affairs, on Friday, two weeks before global financial officials gather in Washington to discuss such issues.
Under the program, called the Pathway for Sustainable Growth, the International Monetary Fund and World Bank would join with sovereign and private creditors, to support nations well before they require restructuring.
The idea is intended to assist countries “struggling under temporary financing challenges but for whom debt is sustainable over time,” Shambaugh will say in a speech to the Atlantic Council in Washington, according to prepared remarks. Countries should be able to access “significant financing alongside significant reform measures,” and would be offered packages from “bilateral, multilateral and private sector sources.”
Shambaugh’s prepared remarks don’t provide a detailed map for winning global backing for the plan. But he’ll say the broad goal is to give such countries the support they need to get through liquidity shortages and pursue ambitious climate and development goals.
“We are working with partners and the international financial institutions to find a better path,” Shambaugh plans to say. He has helped lead US talks with China on financial and economic issues.
Finance ministers and central banks will converge in Washington for the IMF and World Bank annual meetings beginning the week of Oct. 21. The event, which celebrates the 80th anniversary of the Bretton Woods conference that created the two institutions, will feature a gathering of the Group of 20 largest economies, including China, the world’s largest bilateral creditor.
It’s “a real opportunity to make concrete progress,” Shambaugh plans to say.
Shambaugh calls on the Bretton Woods institutions and multilateral development banks to “aggressively but responsibly support countries,” and for the IMF to protect nations’ important investments from spending cuts.
The proposal builds on work by Shambaugh earlier this year. In an April speech, he chastised “free-riding” creditors “pulling funds out of a country” that’s seeking support from multilateral lenders such as the IMF.
In May, the White House called on sovereign creditors like China to stop draining away funds from such countries facing mounting debt burdens.
Bloomberg News reported in February that the US and China were discussing new measures to prevent a wave of emerging market sovereign defaults, including ways to preemptively extend loan periods before countries miss payments.
Developing nations spent a record $443 billion on debt service payments in 2022, according to the World Bank, which has warned the situation risks tipping them into crisis and creating a “lost decade” of economic stagnation.
The new proposal is intended in part at preventing nations from reaching the point where they must enter a process known as the Common Framework, a program to restructure debts started in 2020 by the Group of 20, World Bank and IMF that’s seen slow progress for countries like Zambia and Ghana.
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