G20 readies limited extension of debt relief for poorest nations

The G20 group of wealthy nations is preparing to extend its offer of debt relief for the world’s poorest countries into next year, but faces a growing chorus of criticism for its limited ambition in the face of a mounting crisis in emerging economies.

G20 ministers will meet on Wednesday during this week’s annual meetings of the IMF and World Bank, when they are expected to announce a six-month extension of the group’s debt service suspension initiative (DSSI) under which 73 eligible countries can apply to G20 governments and their policy banks to postpone debt repayments due this year and spread them over four years.

The original initiative was announced as the pandemic took hold across the globe this spring, to offer short-term relief to poor countries struggling to meet the immediate healthcare, social and economic costs.

But, if confirmed, the extension will be less than requested by beneficiary countries.

A meeting this month of the UN Economic Commission on Africa, the Institute of International Finance which represents private sector creditors, and a group of African finance ministers asked that the DSSI be extended to the end of 2021. 

The G20 has also been criticised for failing to take the views of debtor countries into account.

A statement released after the meeting said that “all stakeholders, including debtor countries and the private sector, should have a seat at the table and their views must be considered”. 

Stephanie Blankenburg, head of debt and development finance at the UN Conference on Trade and Development, said: “There is an agreement among the advanced and developing countries in the G20 to only represent creditor interests. There is no talk at all about how debtor countries might receive their proposals.” 

In particular she criticised a separate G20 plan for poor countries in debt distress, which will consider reductions and writedowns on a case-by-case basis next year.

It makes relief from G20 countries conditional on debtor countries seeking the same treatment from private creditors, including commercial banks and bondholders.

Ms Blankenburg said: “That puts a huge burden on the eligible developing countries, which tend to be small and poor.”

David Malpass, president of the World Bank, has also criticised the G20 efforts.

Speaking on Tuesday he said that “the G20 is a forum primarily for creditors and it has been reluctant to move forward with the broader theme [of debt relief]”.

“Bilateral creditors are seeking to get as many repayments as possible,” he said. Mr Malpass has repeatedly criticised G20 members for not participating fully in the initiative.

According to the IMF, 44 countries have applied to take part in the DSSI, postponing about $5.3bn in repayments this year — less than half the potential $11.5bn savings estimated by the World Bank.

The amount postponed is about a tenth of the fiscal cost of the pandemic in the 73 eligible countries this year, estimated by the IMF to be the equivalent of 2.2 per cent of gross domestic product, or about $54bn.

Of the 44 countries that have used the DSSI, only three have asked for comparable treatment from private creditors and no agreements have yet been signed, according to the IMF.

Mr Malpass also criticised the partial engagement of China in the DSSI. Some Chinese creditors had rescheduled principal payments but continued to take interest payments, with the deferred debt still subject to interest “so it will add to the debt burdens of poor countries rather than relieving them”, he said.

China has emerged as the biggest lender to many of the world’s poor countries in recent years. World Bank data published this week show that its share of the debt owed by the 73 countries in the DSSI rose from 45 per cent in 2013 to 63 per cent at the end of last year, when the combined debts of the 73 were $744bn.

China has been criticised for treating its large policy banks as commercial rather than public lenders, meaning they have a choice about whether to participate in the DSSI. China says it is participating fully in the DSSI and has provided almost half of the relief so far negotiated this year.

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