G-20 expects the standstill to make $14 billion available to confront the virus
The Group of 20 leading economies will decide on extending the current debt payments suspension for the poorest countries closer to the end of the year, putting off assurances of additional relief as the coronavirus pandemic ravages the world.
All member countries have started implementing the Debt Service Suspension Initiative that currently is set to only run through December, and the G-20 expects the standstill to make $14 billion available to confront the virus, Finance Minister Mohammed Al-Jadaan of host Saudi Arabia told reporters on Saturday. So far, 42 countries have requested help under the plan, leading to the suspension of $5.3 billion in repayments.
The move to consider extending debt suspension follows calls from the World Bank, International Monetary Fund and charities such as Oxfam. The rate of Covid-19 infections is increasing in many countries, and even with the G-20’s agreement in April that aims to waive bilateral debt payments from vulnerable countries, the cost of servicing obligations crowds out health and social expenses.
The World Bank last month forecast emerging markets’ output will shrink for the first time in at least six decades.
The virus and worldwide recession will lead to increasing poverty in less-developed nations, and debt burdens for some countries are rising to crisis levels, World Bank President David Malpass said in remarks prepared for Saturday’s virtual gathering of finance ministers and central bankers. He urged the G-20 to extend the standstill through the end of 2021 and to broaden the scope.
“The situation in developing countries is increasingly desperate,” Malpass said. “Time is short. We need to take action quickly on debt suspension, debt reduction, debt resolution mechanisms and debt transparency.”
Al-Jadaan said the G-20 will receive a progress report from the IMF and World Bank in advance of the lenders’ annual meetings in October to help decide on the next steps. In its official communique on Saturday the G-20 said it is “determined to continue to use all available policy tools to safeguard people’s lives, jobs and incomes, support global economic recovery, and enhance the resilience of the financial system, while safeguarding against downside risks.”
IMF Managing Director Kristalina Georgieva said in a statement that she hoped the G-20 would consider an extension of the debt moratorium, without giving a specific time frame. The IMF is stepping up action to make better use of existing special drawing rights, or reserve assets, she said.
After Saturday’s meeting, French Finance Minister Bruno Le Maire said France supports extending the debt service suspension through the end of 2021, and that the nations are on a good path to get an agreement. He said European nations continued to discuss work to establish a tax for digital companies by the end of the year and a minimum tax for corporations to fight evasion.
However, the commitments made at Saturday’s meeting may not yet go far enough, according to Jubilee USA Network, a nonprofit group that advocates for debt relief for smaller economies.
“Given the severity of the current crisis, we hoped we’d see more action,” Jubilee’s Eric LeCompte said in a statement.
LeCompte highlighted as a positive the G-20’s stronger language Saturday in its communique, where it “strongly encouraged” private creditors to join the debt suspension initiative. That was a more forceful appeal than in April, when the nations said they would “call on” the private sector to participate. That’s important because some private sector creditors have been resisting the debt relief process, he said.
The aid group Oxfam was critical of the results of Saturday’s meetings, saying in a statement that the “lack of progress on debt relief is as irresponsible as it is underwhelming.” The group called for steps that include extending the debt suspension through the end of 2022, expanding it to middle-income countries, including the private sector and multilateral development banks, and for the IMF to issue additional reserves assets.
Also on Saturday, Germany pledged an additional 3 billion euros ($3.4 billion) to the world’s poorest countries through the IMF’s Poverty Reduction and Growth Trust.
The extra funding is designed to help countries access long-term loans and overcome liquidity bottlenecks, especially during the current crisis, Germany’s finance ministry said in a statement.