WASHINGTON — The G-20 extended its debt suspension initiative but otherwise fell short of what low-income countries, advocates, and World Bank President David Malpass had hoped it would do to help countries facing debt challenges in the wake of COVID-19.
The Group of 20’s Debt Service Suspension Initiative, which allows the world’s poorest countries to delay debt payments, was extended through the first half of 2021, with the G-20 reviewing whether another extension might be needed at the World Bank annual meetings.
Many had hoped that the result of this round of meetings would be progress on a debt reduction process, instead the G-20 in its communique said that it “agreed in principle on a ‘Common Framework for Debt Treatments beyond the DSSI’” and acknowledged that more may be needed for certain countries beyond what the DSSI is providing.
“We were expecting to see a more ambitious outcome,” said Jaime Atienza, Oxfam's debt policy lead. “When you look at the financial situation low-income countries are facing, it makes no sense to keep waiting.”
Wealthy countries have regained some stability and are not as ambitious as they should be as countries continue to pay down debt and deplete their reserves, Atienza said.
“In a sense, you could say the G-20 countries are overlooking the crisis poor countries are suffering,” he said.
“We have to find a way to accelerate this process, and get to debt reduction earlier, otherwise the people of a country pay year after year and get nothing for it.”— David Malpass, president, World Bank
On Tuesday ahead of the release of the G-20 communique, World Bank President David Malpass said it was “disappointing,” and action was needed on debt relief rather than just debt deferral.
“DSSI defers debt payments and adds interest, it doesn’t reduce debt. It’s important that people in poorest countries see an actual reduction in the amount of debt,” Malpass said Wednesday.
World Bank President David Malpass says he plans to propose a $25 billion emergency funding facility for the International Development Association, the bank's fund for low-income countries, to help with its response to COVID-19.
Negotiations on debt reduction were delayed and deferred to a new meeting of G-20 finance ministers to be held in November, while several other issues to help countries with debt challenges, provide financing and address COVID-19 appear to be in a holding pattern.
The G-20 communique was the result of “intense” negotiations, Eric LeCompte, executive director of Jubilee USA Network, told Devex.
The inability to come to an agreement on the debt reduction framework came down generally to tensions around how extensive a restructuring process should be and whether it would include other low- and middle-income countries beyond those eligible for DSSI. China, India, and Turkey had concerns about agreeing to a process without a resolution to questions about who it impacts, LeCompte said. Some countries, specifically China, may need to change their laws to participate in a debt reduction process, he added.
“I think this is the most important thing that the G-20 is dealing with right now, how to move forward a debt reduction framework, who is included, how to handle the private sector,” he said.
Mohammed Al-Jadaan, the finance minister of Saudi Arabia, which chairs the G-20 this year, called the agreement on the framework “a major breakthrough.” He said the G-20 will host a special finance ministers meeting in November about the framework for how to deal with debt vulnerability and solvency issues in these countries.
“Despite progress we still need to do more. We must ensure that these nations are fully supported in their efforts,” he said at a press conference Wednesday.
“This is the most important thing that the G-20 is dealing with right now, how to move forward a debt reduction framework, who is included, how to handle the private sector.”— Eric LeCompte, executive director of Jubilee USA Network
Another ongoing issue is the participation of the private sector, which has been asked to voluntarily provide relief in line with DSSI, but has not done so.
“We are disappointed by the absence of progress of private creditors’ participation in the DSSI, and strongly encourage them to participate on comparable terms when requested by eligible countries,” the G-20’s communique said.
The G-20 should use this time before the November meeting to find mechanisms to include private debt in the negotiations, ensure agreement from all countries, and include countries in debt distress who are outside DSSI, Atienza said.
A voice at the table
One issue with these ongoing negotiations is that debtor countries do not have a seat at the table at the G-20 and may not have a say in how these processes are structured.
Al-Jadaan acknowledged the concerns of the world’s lowest-income nations, who feel they don’t have a voice as the G-20 discusses these issues, but added that those countries have representation at the International Monetary Fund and the World Bank, which are working closely with the G-20.
Malpass has spoken multiple times this week about the issue of debt, urging more action, and he encouraged countries to speak up to the G-20.
“We have to find a way to accelerate this process, and get to debt reduction earlier, otherwise the people of a country pay year after year and get nothing for it,” Malpass said.
The G-24, the body that represents low- and middle-income countries in international fora, released a communique this week calling for support for LMICs as they “manage their worsening debt vulnerabilities to avoid a debt crisis that seriously sets back development progress.”
Mozambique’s Minister of Economy and Finance Adriano Afonso Maleiane said his country welcomes the G-20 efforts which can help relieve some of its cash problems, but “when the issue is suspension and not cancellation it raises more questions than answers.”
Mozambique would welcome private creditors participating in DSSI but “didn’t take the initiative to approach them” due to concerns about the length of negotiations and creating instability, Maleiane said at a virtual event on Tuesday.
The risk of being downgraded by credit rating agencies and limiting market access is holding back government decisions to seek debt relief, an issue that needs to be addressed to implement effective debt standstills, the G-24 communique said.
Any new framework needs to include mechanisms for restructuring and reduction “when they are necessary to restore debt sustainability,” the communique said. It also asked for IMF, the World Bank Group, and other development partners to provide financing to countries as they undergo a debt restructuring and “work urgently on mechanisms to foster fair, meaningful and timely sovereign debt resolution.”
One way to provide additional support is through a new IMF issuance of Special Drawing Rights, which would provide countries with additional liquidity, though there too talks appear to be stalled at the G-20.
It seems as if countries are “holding back hoping for a different U.S. administration so the blockage on the SDR issue is finished and everyone can receive additional support,” Atienza said.