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August 7, 2020

How the IMF can help mitigate world wide government debt crisis

By Paul Dennis

7 August

Government debt is rising across the world as countries continue to borrow to release funds for economic recovery amid the pandemic.

The rising debt could lead to a global crisis plagued by unemployment, fuel instability and violence.

Tony Addison, professor of economics at University of Copenhagen, shared an article on the ways in which a global debt crisis can be prevented.

It is estimated more than 100 low to middle income countries will have to pay $130bn in debt service in 2020, out of which approximately half of it will need to be paid to private creditors.

An alternative to avoid such a debt crisis is voluntary sovereign debt buybacks, which can help in reducing debt burdens by obtaining discounts on the face value of sovereign bonds.

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A multilateral buyback facility managed by the International Monetary Fund (IMF) can be implemented to manage funds from a global consortium of countries.

To ensure debt reduction, the IMF can conduct auctions and buyback certain amounts of bonds.

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