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European Council President Charles Michel on Friday (November 20) called on G20 leaders to create “a new sustainable finance model” to avoid sovereign defaults in the aftermath of the COVID-19 crisis.
“In our opinion, it is not enough,” Michel said of the G20 Debt Service Suspension Initiative, which has suspended payments on intergovernmental debt, ahead of the G20 leaders’ summit this weekend.
While 43 countries have joined DSSI, private creditors have so far resisted participating, and the G20 lacks a mechanism to bind them.
“All creditors must do their part. No country should be perceived as a free trip. Multilateral means that everyone is on board. We need a new sustainable finance model, particularly in Africa, to break the cycle of debt overhang, ”said Michel.
Michel added that financing and development, in addition to the COVID-19 pandemic, will be on the agenda of an EU-African Union meeting in December.
Only African states face a funding gap of $ 345 billion through 2023, the managing director of the International Monetary Fund, Kristalina Georgieva, warned earlier this month.
At Friday’s meeting of G20 finance ministers and central bank governors, World Bank President David Malpass said countries must move forward with “deep and permanent debt relief” and that some may need to make changes. legislation to pressure private sector creditors to support sovereign governments. debt restructuring of countries in difficulty.
“Major jurisdictions may need to seek legislative changes to support faster progress if private creditors cannot move forward on their own,” Malpass said, referring to the bank’s call to require public creditor institutions to disclose debt contracts. and make refinancing agreements. public.
The public debt burden in Europe and around the world has increased significantly as a result of the combination of the recession and emergency public spending programs to support businesses and workers whose trade has been severely affected by restrictions imposed to control the spread of COVID-19.
However, developing countries, although they tend to have a lower debt-to-GDP ratio than European and other rich countries, are more vulnerable to widening bond spreads.
Earlier this week, Zambia became the first African country to default on debt payments since the COVID-19 pandemic and a handful of countries in Africa and elsewhere are expected to face debt or default problems without an ambitious restructuring plan.
The G20 has started what will likely be a lengthy process of developing guidelines on when debt restructuring can be allowed. The final blueprint is likely to require governments to submit credible national recovery plans, backed by the IMF, and show sufficient transparency to be eligible.
At the G20 summit, the EU is also ready to pressure the international community to commit more to providing universal access to COVID-19 vaccines, said the President of the European Commission, Ursula von der Leyen.
The goal is to purchase 2 billion doses of the COVID-19 vaccine to make available to 92 low- and middle-income countries, at an estimated cost of $ 5 billion.
The EU will also host a global health summit under the Italian G20 presidency next year.
[Edited by Sam Morgan]
