The Group of 20 major economies agreed to a framework for more debt relief among poor nations on Friday, responding to appeals from humanitarian and economic leaders to alleviate massive suffering from economic fallout due to the coronavirus pandemic.
A statement by G-20 finance ministers and central bank governors after their virtual gathering said their "common framework" for debt restructuring could allow low-income countries to get an extension on debt payments through mid-2021 and, possibly, forgiveness of all debt.
The G-20 is extending a program known as the Debt Service Suspension Initiative, or DSSI, called for by the World Bank and International Monetary Fund, or IMF. It also has the backing of Paris Club officials from major creditor countries. The repayment period is 5 years, with another one-year grace period. At least 44 of more than 70 eligible countries participate, potentially saving them US$11.5 billion this year, according to World Bank figures.
The debt repayments stem from US$13.8 billion owed to multilateral institutions, US$11.6 billion to private creditors and US$3.77 billion to the World Bank.
"Given the scale of the COVID-19 crisis, the significant debt vulnerabilities and deteriorating outlook in many low-income countries, we recognize that debt treatments beyond the Debt Service Suspension Initiative may be required on a case-by-case basis," G-20 officials said in a brief statement. "All official bilateral creditors should implement this initiative fully and in a transparent manner."
The World Food Program, which won the Nobel Peace Prize last month, has estimated almost 690 million people suffer from hunger and extreme poverty. The World Bank said the pandemic forced another 88 million to 114 million people into extreme poverty — living on less than US$1.90 a day.
In mid-October, G-20 finance ministers and central bank governors agreed to suspend for another six months the debt payments coming due from developing nations. That extension provided relief for US$14 billion in debt payments. Developing nations that participate can put off servicing their debts until June 2021, so they can spend more money on health care and stimulus programs.
But humanitarian and economic leaders cautioned that will not be enough to alleviate massive suffering. And in July, four anti-poverty international organizations — Oxfam International, Christian Aid, Global Justice Now and Jubilee Debt Campaign — called on the G-20 to cancel the debts of developing nations and make DSSI legally binding through 2022. A previous agreement in April by the G-20 allowed for a six-month suspension of US$12 billion in debt payments for more than 70 poor and mostly African nations.
Seeking 'a sustainable level'
The Group of 20, a forum for developing global policies on the most pressing challenges, includes 19 member nations plus the European Union. Together they represent 80% of global GDP. The 19 nations are: Argentina, Australia, Brazil, Britain, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey and the United States.
Saudi Finance Minister Mohammed al-Jadaan, who chaired this year's G-20 meetings, called the framework “an unprecedented agreement and a major breakthrough in international debt agenda.” The G-20 program, however, does not spell out the creditors that would agreed to cancel debt. Finance ministers and central bank governors said they would reconvene next spring t0 look at another possible six-month debt suspension.
There have been "very few requests" from DSSI-eligible countries for debt relief from the private sector, according to the Institute of International Finance, a Washington-based trade group for the global financial services industry, but private creditors remain ready to take part in the extended DSSI upon request from eligible countries.
"It is clear that the pandemic has increased the risk of debt distress," IFF said in a statement, "in such cases private creditors stand ready to engage in good faith on debt treatments that restore long-term debt sustainability, in the context of an IMF-supported policy program, with comparability of treatment for all creditors."
IMF Managing Director Kristalina Georgieva called the latest G-20 move on debt relief an important achievement, because DSSI has provided much needed "breathing space" for nations suffering financial shocks amid the pandemic.
"But there are countries where debt levels are not sustainable. And this suspension time ought to be used to bring them to a sustainable level. This is where the timely common framework comes into play — a coordinated approach to debt treatment, a standardized approach, but with case-by-case resolution," Georgieva said in a statement.
"It is also so critically important, as many have said, to bring the private sector on board. Having the common framework would make this more likely, and applying it on a case-by-case basis will increase the viability of our action," she added. "But let's be very frank here. We are not out of the woods. This crisis is not over. We need further support through debt relief and through fresh financing."