Private Sector Should Join Poor Country Debt Relief Plan
The writer is Saudi Arabia’s finance minister and chairman of the G20 finance track
The Covid-19 pandemic is an unprecedented human tragedy, disrupting millions of lives. Nations have been pressured to close their borders and impose lockdowns, and we face extraordinary uncertainty about the depth and duration of this global crisis.
The G20 was created precisely to develop collective action in such circumstances. The leaders of these countries have agreed to inject an unprecedented $ 7 billion – the largest stimulus ever – into the global economy with targeted economic tax measures and guarantees.
This was complemented by timely action by the G20 central banks which provide much needed liquidity and support for credit flows to households and businesses, and by the IMF and World Bank which provide financial assistance to countries in need.
Still more needs to be done. The impact of the coronavirus on developing countries with weak health systems and economies less able to cope could be devastating. The UN estimates that in Africa alone, the virus could kill 300,000 people, and the IMF estimates that the continent needs $ 114 billion in 2020 for spending on health and social services.
This is why the G20 recently agreed to a time-limited suspension of debt service payments for the poorest countries. Some 77 countries – including all those eligible for International Development Association credits – will benefit, ensuring they can devote tens of billions of dollars to fighting the pandemic. All official bilateral creditors are participating in this initiative, using a common list of conditions, and multilateral development banks are encouraged to join. Private creditors should now do the right thing and go with the flow.
Since the 2008 crisis, the global financial system has become, thanks to an improved regulatory environment and the actions of the banks themselves, much stronger and able to withstand shocks. With stronger balance sheets and tighter regulatory compliance, the financial services system appears capable of withstanding the challenges of Covid-19.
The global financial services industry was valued at over $ 22 billion last year, testifying to its economic importance.
Private institutions are owed about $ 18 billion, or 40 percent of public debt service payments owed by the world’s poorest countries this year. If these creditors were willing to suspend even half of that amount, it would put $ 9 billion at the disposal of these countries to deal with the impact of Covid-19, as each nation negotiates individual terms. regarding his debts.
We were encouraged by the fact that immediately after the recent G20 meeting, the Institute of International Finance, the global industry association, said it had “recommended that private creditors voluntarily grant to eligible countries to IDA, on request, a fixed-term forbearance of debt payments – similar to what the official sector announced today ”.
Just as the world rallied to support the financial services sector in 2008 and 2009, financial institutions and other private creditors should follow the lead of the G20 and reflect on the help and support they can now provide to financial institutions. most vulnerable in the world.
Indeed, many private creditors have told us that they are seriously considering debt suspension, and we urge them to materialize their intentions as soon as possible.
As heads of government, we know this has to be voluntary. We must avoid imposing anything on private investors, as this could distort markets and limit future demand for emerging market debt from the private sector. But we strongly encourage them to do so. We are also committed to working with those who are looking for a quick solution to this problem. The G20 stands ready to take further action to help resolve any issues.
Private creditors should show the same willingness to grant a moratorium on debt repayment as the G20 has shown. Governments cannot dictate these conditions but the need is immediate.
We are all in the same boat and this forces us all to play our role, however small. Individuals stay at home; Frontline health workers courageously treat those who are sick, and national governments inject funds to protect jobs and livelihoods. Private creditors can and should join the G20 and suspend debt payments so that developing countries can focus their resources on fighting this pandemic.
Large financial institutions have a role to play in fostering the global recovery from this crisis. Now is the time to show that they can and will do their part.