On April 15, 2020, finance officials from the Group of 20 major economies agreed to suspend debt service payments for the world’s poorest countries from May 1 until the end of the year, as a group of private creditors also backed offering debt relief.
The actions to freeze both principal repayments and interest payments will free up more than $20 billion for the countries to spend on improving their health systems and fighting the coronavirus pandemic, Saudi Finance Minister Mohammed al-JADAAN told reporters after a virtual meeting of G20 finance officials.
Saudi Arabia is hosting the G20 meetings this year. The video conference meeting of finance ministers and central bank governors ran well over the scheduled two hours, delaying news conferences.
The meeting came amid widespread criticism – including from many G20 member countries – of U.S. President Donald Trump’s decision to temporarily halt funding to the World Health Organization over its handling of the COVID-19 disease pandemic.
But it is only a delay and the campaign group understands that the payments will instead have to be made between 2022 and 2024, along with interest accrued in the meantime. In all, 77 countries are due to benefit from the agreement. The plan was provisionally agreed on Tuesday by the G7 leading developed countries, but it was conditional on support from the wider G20.
Some countries, notably China and Saudi Arabia, which are in the G20 but not the G7, are significant lenders to developing countries. The G7 wanted a contribution to the debt payment suspension from those nations.
The initiative, backed by the Paris Club of creditors, is part of globally coordinated efforts to bolster the global economy which is facing the deepest recession since the Great Depression of the 1930s due to the pandemic.
Oxfam International said more work was needed to protect Lebanon, Ecuador and other countries not covered by the deal, and to raise the estimated $1 trillion needed to help countries weather the “economic tsunami” unleashed by the pandemic.
The charity group and others have called for cancellation – not just suspension – of poor countries’ debts in 2020.
A source familiar with the agreement said it would cover $12 billion to $14 billion in bilateral debt service payments owed by the 76 International Development Association (IDA) countries, plus Angola, through the end of the year.
Private creditors will join the debt relief effort on a voluntary basis, said the International Institute of Finance, which represents 450 banks, hedge funds, and other global financial firms.
A French finance ministry official said private creditors had agreed to roll over or refinance $8 billion of the debt of the poorest countries, on top of the roughly $12 billion in debt payments to be suspended by bilateral creditors.
A further $12 billion is owed to multilateral lenders, mainly the World Bank, French Finance Minister Bruno LE MAIRE told reporters, although he provided no details.
IMF director Kristalina GEORGIEVA and World Bank Group President David MALPASS praised the deal.
World Bank Group President David MALPASS said the Bank, the IMF, and other multilateral lenders were exploring options for suspending their debt service payments while maintaining high crediting ratings on their bonds.
The IMF is looking to triple its concessional financing for the poorest countries to over US$18 billion to help them respond to the pandemic, Georgieva said. Concessional loans generally offer terms that are favorable to those available on the market. She said the Fund’s Executive Board had approved the creation of a short-term liquidity line, a revolving and renewable backstop for member countries with very strong policies and fundamentals.
The new instrument, first proposed but not finalized in 2015, allows certain countries revolving access of up to 145 percent of their quota to cover short-term balance-of-payments needs, which could prove helpful in the current crisis.
Georgieva said there was also an “emerging consensus” to deploy existing Special Drawing Rights (SDR) to allow more lending to developing countries.
But her sentiment on the SDRs – the IMF’s unit of exchange – was at odds with a statement from G20 finance leaders that said the group had reached no consensus over the use of SDRs, either through a new allocation or through lending “excess” SDRs to poor countries.
This article was edited using the data from Reuters, Tribune, BBC, and Chinadailyhk.
Source of the photo: Albawaba.com.