The world’s poorest countries have been offered fresh help to restructure their debts as leading economies and creditor nations agreed new principles for debt relief to help them fight the economic effects of the coronavirus pandemic.
The G20 group of the world’s largest economies and the Paris Club group of lender nations endorsed a new common framework for debt relief on Friday. It aims to allow indebted poor nations to apply for debt relief including write-offs while ensuring that all creditors negotiate on the same level playing field.
The move is a significant extension of the suspension of debt repayments agreed by G20 and Paris Club governments early in the pandemic.
The debt service suspension initiative (DSSI), which has been in operation since May, initially allowed 73 of the world’s poorest countries to suspend payments on bilateral loans which fall due this year. Last month the DSSI was extended until June next year, with repayments spread over six years.
The new common framework announced on Friday aims to tackle longer-term debt sustainability problems in poor countries and attempts to deal with the problem of comparability of treatment among official and commercial creditors that has dogged the DSSI.
About 46 countries have asked bilateral lenders to suspend payments worth about $5bn this year via the DSSI, but none has asked the same of bondholders for fear of jeopardising their access to international bond markets.
Such issues have dogged negotiations over restructuring the debts of Zambia, for example, which is likely to fall into default on Friday after missing a bond payment last month. Creditors have complained of a lack of transparency and fear that any relief they grant will be used to pay other creditors rather than to address the country’s fiscal problems.
Mohammed al-Jadaan, finance minister of Saudi Arabia, which holds the G20 presidency this year, called the framework “an unprecedented agreement and a major breakthrough in international debt agenda”.
Michael Hugman, a director at the Children’s Investment Fund Foundation, a philanthropic organisation, said it was “a positive step towards making the mechanism for debt treatment equal and open”.
But others criticised the framework for failing to include some of the emerging economies which have been worst-hit by the pandemic.
“Unfortunately developing middle-income countries are excluded from this process as they face some of the highest poverty increases because of the coronavirus crisis,” said Eric LeCompte, director of Jubilee USA, which campaigns on poverty and debt.
The common framework has been under discussion for several months and had been due to be unveiled at a meeting of G20 finance ministers and central bankers last month, but agreement could not be reached in time.
The text published on Friday includes a clause that was added to earlier drafts seen by the Financial Times, promising to conduct negotiations “in an open and transparent manner” and to take into account the concerns of “all participant creditors and the debtor country”.
Debtor countries, along with some commercial creditors, have complained since the onset of the crisis that they were excluded from debt discussions at the G20 and the Paris Club.