TCX’s Response to the Joint Statement of the IMF and World Bank
September 14, 2023
Amsterdam, The Netherlands

TCX embraces the Joint Statement of the IMF Managing Director and of the World Bank President dated September 7 which mentions the commitment from both institutions to enhance their collaboration. We share the need for intensified collaboration to tackle increased debt vulnerabilities and climate change, particularly when it comes to strengthening sovereign debt management and improving the joint Debt Sustainability Framework for Low-income Countries.

We would welcome acknowledgement from the Bretton Woods Institutions that they have contributed themselves to some of the challenges that their borrowers face today. Tangible improvements require self-reflection and a willingness to change. The 75-year old status quo of lending to vulnerable countries in hard currencies— and consequently offloading foreign exchange (FX) risk—has contributed to today’s debt sustainability issues. FX risk is a key driver of debt vulnerabilities, as shown repeatedly by the IMF’s and World Bank’s research. It makes debt burdens unstable and unpredictable, the opposite of what the institutions aim to achieve.

Supporting low and middle-income countries effectively and improving their resiliency requires a reform of current MDB lending practices. Echoing Ajay Banga’s remarks at the G20 India Summit, we believe that World Bank leadership needs to “deliver a better bank” first. This starts with increasing risk-appetite and a firm commitment to implement responsible lending practices, which include a larger share of local currency financing or hedged hard currency financing.

The status quo will not resolve today’s global challenges and we believe the Bretton Woods Institutions have a leading role to play in changing practices for the better. Adopting innovative financial products, being open to change, and establishing new partnerships in the international financial architecture will go a long way in achieving better development impact.

Development finance can do better.