Debt Relief Plans for the World’s Poor Countries Progressing
LONDON / WASHINGTON (Reuters) – Debt relief plans for the world’s poorest countries advanced on Thursday as private creditors presented a plan for their involvement, although it was immediately criticized for not going far enough.
The proposal put forward by the Institute of International Finance (IIF) said creditors would grant debt reductions on a case-by-case and voluntary basis this year, after concluding that a one-size-fits-all approach would have been “virtually impossible” .
It was the culmination of work involving more than 100 major fund managers after the Group of 20 economies called on the private sector to match its recent Debt Service Suspension Initiative (DSSI) to help 77 low-income countries.
“The IIR has insisted that creditors of all types and sizes have a role to play in ensuring that the world’s most vulnerable countries have the cash flow they need to fight the COVID-19 pandemic” , said IIR President and CEO Tim Adams.
The G20 proposal and the IIF plan only cover the end of the year, and with no cure for the coronavirus expected in the coming months, that may not be enough.
UN chief Antonio Guterres on Thursday called for an extension of debt relief and urged the International Monetary Fund to increase allocations of its currency of Special Drawing Rights (SDRs) to give countries a better access to finance.
African countries are facing a $ 44 billion debt service bill this year alone. It is estimated that the pandemic and economic shutdowns could push up to 60 million people into extreme poverty around the world.
“The crushing debt relief cannot be limited to the least developed countries,” Guterres said at a high-level United Nations meeting on how to deal with the economic fallout from the pandemic. “It must be extended to all developing and middle-income countries that request forbearance because they lose access to financial markets.”
(Impact of debt relief for the world’s poorest countries IMAGE 🙂
World Bank President David Malpass also warned at the conference that “much more” debt relief would be needed. He said about half of the 77 countries eligible for G20 debt relief had requested help so far, and more were in the process of signing.
All official bilateral creditors should offer their help, he said, and said commercial creditors should “participate on comparable terms and not exploit the debt relief of others.”
However, he rejected calls on the World Bank and other multilateral development banks to freeze debt payments, saying it would hurt their ability to provide much-needed finance.
The Saudi G20 secretariat, in a statement issued after a special meeting of the task force, said the debt relief initiative could provide $ 14 billion in liquidity as more countries would register. But he said the amount could be even higher if additional creditors such as multilateral development banks and private sector creditors join the initiative.
The IIR’s plan included coordination with the International Monetary Fund, the World Bank, the Paris Club, the United Nations Economic Commission for Africa and more than a dozen finance and development ministers representing the countries eligible for DSSI.
UN officials believe debt relief is imperative to enable developing economies to spend more to contain the coronavirus and limit what economists fear as an inevitable debt crisis.
Tim Jones, policy manager at Jubilee Debt Campaign, a charity that focuses on poverty reduction, was instrumental.
“Overall, the G20 deal in April and the IIR’s proposal today fall far short of addressing the unprecedented nature of the coronavirus debt crisis,” Jones said.
Some countries could end up paying a lot more in the medium term because of the accrued interest, he said, and some lenders could ignore the plan, which is voluntary.
Additional reporting by Michelle Nichols at the United Nations, edited by William Maclean, Jon Boyle and Leslie Adler