The International Monetary Fund has called on the world’s largest economies to extend debt relief, warning of an economic catastrophe in developing countries without such help.

The G20 Debt Service Suspension Initiative (DSSI) expires at the end of the year, and without a renewal, developing countries would face financial pressure and spending cuts. The spread of the new COVID-19 variant – Omicron – and rising interest rates could compound an already bleak situation.

“We may see economic collapse in some countries unless G20 creditors agree to accelerate debt restructurings and suspend debt service while the restructurings are being negotiated,” IMF chief Kristalina Georgieva said in a blog, adding that it is critical private creditors also offer relief.

“Debt challenges are pressing and the need for action is urgent. The recent Omicron variant is a stark reminder that the pandemic will be with us for a while,” Georgieva said in the blog co-authored by Ceyla Pazarbasioglu, director of the fund’s Strategy, Policy, and Review Department.

G20 countries announced the debt relief initiative last year amid the pandemic which hit poor countries the hardest, hampering the ability of those governments to service their debt and support social welfare schemes.

DSSI was extended twice, but the IMF and World Bank have been urging creditors to do more to help with the burgeoning debt load. 73 countries are eligibility for debt relief under the program.

The World Bank estimates that debt loads in developing countries increased 12% to a record $860 billion in 2020, and Georgieva said, “about 60% of low income countries are at high risk or already in debt distress.”

Due to challenges with the debt relief program and the common framework for dealing with private creditors, only three countries have so far applied for relief. Chad, Ethiopia and Zambia have submitted their applications and faced significant delays.

“The framework has yet to deliver on its promise. This requires prompt action,” – IMF chief Kristalina Georgieva.

She also noted that Chad’s program is hung up due to the need to restructure a large amount owed to a private company.

And with inflation surging in major economies, central banks are pulling back on stimulus and expected to begin raising interest rates next year, which would increase debt service costs for poor nations and likely would see capital flee those countries.

“No doubt 2022 will be much more challenging with the tightening of international financial conditions on the horizon,” Georgieva said.

The Washington-based lender is calling for swift improvements to the program, especially mechanisms that oblige private creditors to participate. This would encourage more poor countries to make use of the DSSI.

In addition, “a comprehensive and sustained debt service payment standstill for the duration of the negotiation would provide relief to the debtor at a time when it is under stress,” she said.

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