International Financial Institutions in an Era of Great Power Competition (EventID=116016)

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Connect with the House Financial Services Committee Get the latest news: https://democrats-financialservices.house.gov/ Follow us on Facebook: https://www.facebook.com/HouseFinanci... Follow us on Twitter: https://twitter.com/FSCDems ___________________________________ On Thursday, May 25, 2023, at 9:00 a.m. (ET) Subcommittee on National Security, Illicit Finance, and International Financial Institutions Chair Congressman Luetkemeyer and Ranking Member Congresswoman Beatty will host a hearing entitled, “International Financial Institutions in an Era of Great Power Competition." ___________________________________ Witnesses for this one-panel hearing will be: • Jesse M. Schreger: Associate Professor of Business, Columbia Business School • Mark Rosen: Partner, Advection Growth Capital and former Acting Executive Director, International Monetary Fund (IMF) • Daniel F. Runde: Senior Vice President, Center for Strategic & International Studies (CSIS) • Rich Powell: Chief Executive Officer, ClearPath & ClearPath Action • Dr. Daouda Sembene: Distinguished Nonresident Fellow, CGD and CEO, AfriCatalyst ___________________________________ Hearing Background The global economy is facing gathering challenges with rising interest rates and a looming economic slowdown. For FY2024, the Biden Administration is requesting $4.04 billion for the international financial institutions (IFIs). These include the International Monetary Fund (IMF), the multilateral development banks (MDBs), and associated multilateral trust funds focused on climate change and food security. The FY2024 request for the IFIs is 70 percent more than the amount in FY2023 ($2.36 billion) and accounts for about 6percent of the total FY2024 Department of State, Foreign Operations, and Related Programs (SFOPS) budget request. Sovereign Debt Concerns in Developing Countries Low- and middle-income countries’ debt rose on average 5.6 percent in 2021 to a total of $9 trillion. The COVID-19 pandemic and Russia's war on Ukraine had significant economic and financial consequences for low-income countries, pushing 97 million more people into poverty in 2020. Since the end of 2019, nine countries (Argentina, Belize, Ghana, Ecuador, Lebanon, Sri Lanka, Russia, Suriname, and Zambia) defaulted on sovereign debt obligations. A majority (60 percent) of low-income countries face "debt distress." This means that there is a risk that a country may be unable to meet its financial obligations without debt restructuring or possibly debt forgiveness. As of January 31, 2023, nine countries are in debt distress, 28 countries are at high risk and 25 countries are at moderate risk. From 2019 to 2020, overall borrowing jumped by 28 percentage points to 256 percent of GDP, with government borrowing accounting for about half of this increase. Since 2015, China has been the largest creditor to low-income countries, surpassing the IMF, the World Bank, and the Paris Club (a core group of traditional donor governments including the United States and 21 other countries but not China). Unlike the others, China rarely discloses the amounts or terms of its bilateral debt agreements, and estimates are that half of China's official lending to developing countries is not reported in debt statistics. In 2020, to respond to COVID-related economic shocks, G7 Finance Ministers under the U.S. G7 Presidency conceived the Debt Service Suspension Initiative (DSSI). The DSSI was vetted through the Paris Club, and ultimately adopted by the G20 on April 15, 2020, in conjunction with private creditors. DSSI temporarily suspended interest and principal repayments on G-20 official bilateral loans through the end of 2020. It was later extended through December 2021. Over that period, it delivered more than $8.9 billion in official debt relief to more than 48 of the 73 eligible countries. The G20 and the 22 members of the Paris Club, comprising 39 countries (including China), subsequently endorsed a new "Common Framework for Debt Treatments beyond the DSSI" for providing permanent debt forgiveness. Debt treatment options under this framework include extending the duration of sovereign debt and in extreme cases, debt write-offs or cancellation. Only three eligible countries have requested Common Framework debt relief: Chad, Ethiopia, and Zambia. Governments of many eligible countries may be concerned that seeking debt restructuring, especially with commercial creditors, will lead to ratings downgrades and reduce their future access to financing as has happened previously. For example, . Moody's downgraded Ethiopia's sovereign bonds, in part due to the possibility that a Common Framework agreement might cause private creditor losses. Congressional authorization is necessary for the United States to participate in multilateral debt relief efforts. The FY2022 budget requested $52 million to... Hearing page: https://democrats-financialservices.house.gov/events/eventsingle.aspx?EventID=410470