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G20 nations have agreed to freeze bilateral government loan payments to low-income countries until the end of the year as part of a plan to tackle the health and economic crises triggered by the coronavirus pandemic and avoid a market debt crisis. emerging.
The group of developed and developing countries also called on private creditors “to participate in the initiative in comparable terms” and called on multilateral development banks, such as the IMF and the World Bank, “to further explore options for suspension of debt service payments during the suspension period. “
“We support a temporary suspension of debt service payments for poorer countries seeking leniency,” the G20 said in a statement after finance ministers held an online meeting on Wednesday. “We agreed on a coordinated approach with a common term sheet that provides the key features for this debt service suspension initiative.”
Mohammed al-Jadaan, Saudi Arabia’s finance minister, who currently chairs the G20, said the debt assistance involved could be worth “north of $ 20 billion.” He added that any assistance from private sector creditors would be voluntary, but said: “We encourage them to consider it in support of these countries and the people of these countries.”
Considering the speed, spread and gravity of Covid-19. . . this requires very strong, bold and significant action on the part of the G20 and the world, “said Jadaan.
The moratorium on bilateral government debt payments will begin on May 1. It will apply to the 76 countries that are eligible for assistance from the World Bank’s International Development Association, which works with the poorest countries, as well as with all nations defined as least developed. countries by the UN. Eligible countries must be “current” on any debt service payments to the IMF and the bank.
Debt sustainability concerns have increased in low-income countries that took large loans in the years after the 2008 global financial crisis and now lack the resources to cope with the health and economic crises triggered by the pandemic. of Covid-19 as they grapple with high debt, fiscal deficits, falling revenues, and weaker currencies.
Many poorer nations have closed large parts of their economies, while vital sources of employment, income and foreign exchange earnings have collapsed, including tourism and remittances. Commodity exporters are also bearing the added blow of falling oil and metal prices as world demand freezes, as well as mine closures.
Countries receiving bilateral development assistance are expected to make repayments of approximately $ 40 billion to external creditors this year.
The G20 asked the IMF “to explore additional tools that can meet the needs of its members as the crisis evolves,” but did not ask for a new allocation of the fund’s “special drawing rights,” reserve assets that would offer an injection. Cash to Many countries face sudden depletion of foreign exchange reserves.
Previous drafts of the G20 statement seen by the FT included such a call, but it appears to have been withdrawn after the US-led opposition.
IMF officials say the fund’s current resources are helping governments cope with immediate needs, but greater long-term support will be required.
Kristalina Georgieva, IMF Managing Director, said the fund planned to triple its concessional loans © Andrew Harrer / Bloomberg
Kristalina Georgieva, managing director of the IMF, welcomed the G20 initiative and said the fund planned to triple its concessional loans.
She said the IMF was “urgently seeking $ 18 billion in new loan resources for its Poverty Reduction and Growth Trust”, her concessional lending vehicle, adding that the fund would also need at least $ 1.8 billion in grant resources.
Jubilee Debt Campaign, a UK-based charity, said the G20 deal represented an important step forward, but added that “suspending payments rather than canceling them means countries will continue to accrue interest and face debt levels even older next year. “
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“We urgently need the G20 governments to commit to participating in a UN process to agree on a comprehensive and enforceable way to pay off debts at a sustainable level, ready to be implemented in 2021,” the group said. Otherwise, today’s debt suspension will be next year’s debt crisis. “
The G20 said creditors would consider a possible extension of the moratorium once they have taken into account the liquidity needs of eligible countries.
The countries receiving the assistance would be required to commit to using the aid to “increase social, health or economic spending in response to the crisis,” the G20 statement said. International financial institutions, such as the IMF and the World Bank, are expected to establish a monitoring system.
China, the largest bilateral lender to many poorer nations, has provided debt relief to creditor nations in the past, but has preferred to do it on a tailored rather than part of any coordinated effort. His foreign ministry told the FT last week that it was willing to speak individually with low-income countries about their debt challenges, while noting that past payment problems had been resolved bilaterally.
However, China appeared to have signed up to the G20 initiative, which according to the statement would involve “all official bilateral creditors.”
An official involved in the G20 negotiations said there would be scope to agree to bilateral agreements within broad parameters that apply to all lenders.
“What we have seen in recent weeks is anything but problems and politics, what we have seen is a very clear solidarity and commitment to develop an action plan,” Jadaan said. “We have an agreement from all G20 members on the action plan. . . and making sure to continue that coordination towards recovery. “
