Reportedly, the G20 group of major economies stands ready to give the world’s poorest countries a multi-billion dollar debt freeze to help them cope with the coronavirus crisis and could provide a common approach to tackling longer-term debt restructuring follow.
Finance ministers and central bankers from China, the US and other G20 countries set out their plans in a draft release from Reuters news agency on Tuesday and will finalize the text when they meet online early Wednesday.
A new study by the World Bank on Monday showed that among countries eligible for G20 debt relief, external debt had risen 9.5 percent to $ 744 billion in 2019, even before the pandemic.
Given that the coronavirus is now affecting economies, the World Bank has warned that another 150 million people could be pushed into extreme poverty by the end of next year.
Preparatory meetings among G20 MPs involved “intense” discussions, according to several sources familiar with the talks, finding that China, Turkey and India had opposed a language that would include them in future debt write-offs.
Beijing, the largest new creditor for emerging economies, opposed adopting a common framework for dealing with debt problems beyond the G20 debt moratorium, a move backed by the group of the seven advanced economies, one of the sources said. “The fight is far from over,” added the source.
Chinese officials said they could not commit to any future debt reductions implied by the common framework as it would be illegal under Chinese law, the source said. One solution might be to notice each country’s need to work through “domestic licensing procedures” in a timely manner, a second source said.
G20 MPs will meet again early Wednesday, before the directors rally at 10:30 a.m. GMT to work out the final details, the sources said.
As part of the G20 Debt Service Suspension Initiative (DSSI) approved in April, 43 out of 73 eligible countries have postponed official bilateral debt payments totaling just over $ 5 billion. However, this is less than half the relief that would have been possible if all eligible countries had asked for it. Forbearance.
The absence of private creditors also remains a problem, as does China’s failure to fully participate in all state institutions, according to top economists.
‘Prepare for the worst’
World Bank chief economist Carmen Reinhart, speaking at the International Monetary Fund (IMF) and World Bank online meetings on an online forum, urged the parties to “hope for the best and prepare for the worst”.
Some of the poorest countries in the world, including Honduras, are part of a World Bank initiative to help them deal with large debts [File: Jorge Cabrera/Reuters]IMF executive director Kristalina Georgieva said last week that African nations alone will face a $ 345 billion funding shortage by 2023 to deal with the pandemic and its economic impact.
Developing countries have strongly advocated extending the debt freeze, but say more action is needed to help middle-income countries that are currently not eligible for the G20 initiative.
Angola’s Finance Minister Vera Daves told an online forum organized by the IMF and the World Bank that an extension of the DSSI would be “very useful”.
Officials from Kenya and Costa Rica told an online panel from the Institute of International Finance that countries like China and Russia, which are not currently part of the Paris club government’s debt-relief architecture, should do more to help.
“The desire to win over all creditors, especially China and Russia, is great,” said Patrick Njoroge, Governor of the Central Bank of Kenya. “China was never really there and that has always been one of the weaknesses of the Paris club.”
“Deeper Debt Relief”
The draft communique underlined the need for private sector involvement and urged all official bilateral creditors to implement the initiative fully and transparently.
Odile Renaud-Basso, chairman of the Paris Club of Official Creditors, told a panel that the DSSI initiative had given some countries decisive relief in the short term and praised China’s participation, but said further efforts were needed.
“The question is what comes next,” she said, adding that some countries that had unsustainable debt before the pandemic would likely need “deeper debt relief” that will lower their overall debt – a move that will Participation from China and other countries would require non-Paris club members as well as the private sector.
Costa Rican Central Bank President Rodrigo Cubero reiterated these remarks, saying it was vital for lenders outside the Paris Club to be part of the support and asked for more than just flexible lines of credit from the IMF and other institutions.
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