The 20 richest countries have extended the suspension of the debt service of the countries most vulnerable to the health crisis until June 2021.
The G20 extended for six months on Wednesday, until June 30, 2021, the moratorium on the debt of the poorest countries hard hit by the Covid-19 pandemic, a measure deemed insufficient by NGOs. The 20 richest countries in the world pledged in April to suspend the debt service of the countries most vulnerable to the health crisis until the end of the year.
The extension of the moratorium was announced by G20 finance ministers and central bank heads after a virtual meeting organized by the current chairman of the group, Saudi Arabia. “We have agreed to extend the Debt Service Suspension Initiative for six months,” Saudi Finance Minister Mohammed al-Jadaan said at a press conference.
But this moratorium could be further extended until the end of 2021, at a meeting next spring of the International Monetary Fund (IMF) and the World Bank, according to a joint statement. In addition, the G20 raised the idea of restructuring the debt of the poorest countries, a further step compared to the simple suspension of debt service.
“We recognize that addressing debt beyond suspension of debt service may be necessary on a case-by-case basis,” commented the G20, adding “having agreed on the principle of a common framework” to tackle this topic. US Treasury Secretary Steven Mnuchin echoed this on Wednesday evening from Washington, stressing in a statement that “in a number of countries, debtors and creditors will have to work together quickly to restructure debt, in particular to unblock financing essentials of the IMF ”.
The framework will be clarified at another extraordinary G20 finance meeting ahead of the group’s summit in November. The IMF and the World Bank have called for helping the poorest countries. “The international community must do all it can to support the most vulnerable,” insisted IMF Managing Director Kristalina Georgieva.
“The tendency in debt crises was for struggling countries to go through ineffective rescheduling which weakens them even further,” said World Bank chief David Malpass. Because, explained David Malpass, creditors are granting debt reduction procedures “but at a huge cost”. “We have to work better and faster this time,” he insisted.
NGOs have been more critical. “The G20 took an important step today, but it did not go far enough,” said Najat Vallaud-Belkacem, director of the ONE campaign in France. “They could have extended the debt service cut-off until the end of 2021 to help the world’s poorest countries fight this global pandemic. They just chose not to do it, ”she said.
“With the economic chaos caused by the Covid-19 which threatens to set back the fight against poverty by several decades, the extension of the suspension of the debt service was the bare minimum that the G20 could do,” said Jaime Atienza , from Oxfam.
“Failure to cancel debt payments will only delay the debt tsunami that will engulf many of the world’s poorest countries,” he added. To date, 46 of the 73 poorest countries have applied for the suspension of debt service, most of them in Africa.
The initiative only covered “1.66%” of debt payments from poor countries this year, lamented the European Debt and Development Network (Eurodad), according to which “it had a very significant impact. limited due to the reluctance of private and multilateral lenders to participate ”.
According to the World Bank, the debt of the 73 poorest countries increased by 9.5% in 2019, reaching a record 744 billion dollars (about 632 billion euros). The outstanding debt to government creditors, most of which are G20 states, reached $ 178 billion (151 billion euros) last year, according to the same source. Wednesday’s meeting comes the day after the publication of the IMF’s latest forecasts: the contraction in world GDP will be 4.4% before a recovery in 2021 but the repercussions of this crisis will last for several years.