The International Monetary Fund (IMF) has warned that sharply higher global food and energy prices due to Ukraine war are hitting developing countries hard. It also said that better mechanisms for dealing with sovereign debt stress will be needed to stave off defaults.

Director of the IMF’s Fiscal Affairs Department Vitor Gaspar yesterday said, spikes in food and energy prices were hitting low-income countries particularly hard and they may need more grants and highly concessional financing. He also said, countries should undertake reforms to improve debt transparency and strengthen debt management policies to reduce risks.

IMF’s Strategy Chief Ceyla Pazarbasioglu said that about 60 percent of low-income countries were already in or at risk of debt distress. Rising interest rates in leading economies could lead to widening spreads for countries with weaker fundamentals, making it more costly for them to borrow.

The credit crunch was exacerbated by declining overseas lending from China, which is grappling with solvency concerns in the real-estate sector, COVID-19 lockdowns and problems with existing loans to developing countries, they said.