The G20 group of large economies is reportedly poised to extend a multibillion-dollar debt freeze for the world’s poorest countries to help them weather the coronavirus crisis, and may adopt a common approach to dealing with longer-term debt restructuring.
Finance ministers and central bankers from China, the United States and other G20 countries mapped out their plans in a draft communique seen by the Reuters news agency on Tuesday, and are due to finalise the wording when they meet online early on Wednesday.
A new World Bank study on Monday showed that among countries eligible for the G20 debt relief, external debt loads had increased by 9.5 percent in 2019 to $744bn even before the pandemic.
With the coronavirus now savaging economies, the World Bank has warned that 150 million more people could be pushed into extreme poverty by the end of next year.
Preparatory meetings among G20 deputies involved “intense” discussions, according to multiple sources familiar with the talks, noting that China, Turkey and India had balked at language that would lock them into future debt writeoffs.
Beijing, the largest new creditor for emerging-market economies, objected to adoption of a common framework for dealing with debt concerns beyond the G20 debt moratorium, a move backed by the Group of Seven advanced economies, said one of the sources. “The fight is far from over,” the source added.
Chinese officials said they could not commit to future debt reductions implied by the common framework, since that would be illegal under Chinese law, the source said. One solution may be to note each country’s need to work through “domestic approval procedures” in a timely manner, a second source said.
G20 deputies are due to huddle again early on Wednesday, even before the principals gather at 10:30 GMT to thrash out the final details, the sources said.
The G20 Debt Service Suspension Initiative (DSSI) approved in April has seen 43 of 73 eligible countries defer slightly more than $5bn in official bilateral debt payments, but that is less than half the relief that would have been possible if all eligible countries had requested forbearance.
The absence of private creditors also remains a problem, as does the failure of China to fully participate with all its state-owned institutions, according to top economists.
‘Prepare for the worst’
The World Bank’s chief economist, Carmen Reinhart, speaking at an online forum during the annual meetings of the International Monetary Fund (IMF) and World Bank, urged parties to “hope for the best and prepare for the worst”.
Some of the world’s poorest countries, including Honduras, are part of a World Bank initiative to help them cope with high levels of debt [File: Jorge Cabrera/Reuters]IMF Managing Director Kristalina Georgieva last week said African states alone faced a financing shortfall of $345bn through 2023 to deal with the pandemic and its economic effect.
Developing countries have pushed hard for extension of the debt freeze, but say further measures are needed to help middle-income countries not currently eligible for the G20 initiative.
Angola’s finance minister, Vera Daves, told an online forum organised by the IMF and World Bank that an extension of the DSSI would be “very useful”.
Officials from Kenya and Costa Rica told an Institute of International Finance online panel that countries such as China and Russia – not currently part of the Paris Club government debt relief architecture – should provide more help.
“The desire to rope in all creditors, and particularly China and Russia, I think it is great,” said Patrick Njoroge, governor of the Central Bank of Kenya. “China has never really been there and that has always been one of the weaknesses of the Paris Club.”
‘Deeper debt relief’
The draft communique underscored the need for private sector involvement and said all official bilateral creditors should implement the initiative fully and transparently.
Odile Renaud-Basso, who chairs the Paris Club of official creditors, told a panel that the DSSI initiative had provided crucial short-term relief for some countries and lauded China’s participation, but said further efforts were required.
“The question is what is next,” she said, adding that some countries that had unsustainable debt levels before the pandemic would likely need “deeper debt relief” that cut their overall debt level – a step that would require the involvement of China and other non-Paris Club members, as well as the private sector.
Costa Rica’s central bank president, Rodrigo Cubero, echoed those remarks, saying it was vital for non-Paris Club lenders to be part of the support and calling for more than just flexible credit lines from the IMF and other institutions.