From the Group of 20 major economies, Finance officials agreed on Wednesday to suspend debt service payments for the world’s poorest countries through the end of the year, a move quickly matched by a group of 100’s of private creditors.
After a virtual meeting of G20 finance officials, Saudi Finance Minister Mohammed al-Jadaan told reporters, “The actions to freeze both principal repayments and interest payments will free up more than $20 billion for the countries to spend on improving their health systems and fighting the coronavirus pandemic.”
This year Saudi Arabia is hosting the G20 meetings. Video conference meeting of finance ministers and central bank governors on Wednesday, ran well over the scheduled 2 hours, delaying news conferences planned by al-Jadaan and IMF Managing Director Kristalina Georgieva.
The video conference meeting came amid widespread remark – containing from many G20 member countries – of USA President Donald Trump’s decision on Tuesday to temporarily halt funding to the World Health Organization over its handling of the COVID-19 disease pandemic, which has now killed around 134,000 people globally.
For the world’s poorest and least-developed countries, the debt standstill offer is open. It is defined by the World Bank and the United Nations, as long as they are current in their debt service payments to the World Bank and the IMF(International Monetary Fund).
The Paris Club of creditors’ initiation is part of globally coordinated efforts to make the global economy stronger which is facing the deepest recession since the Great Depression of the 1930s due to the pandemic.
Olaf Scholz, the German Finance Minister called the move “an act of international unity with a historical dimension which would let the countries invest in healthcare “immediately and without time-consuming case-by-case examination”.
“More work was required to protect Lebanon, Ecuador and other countries not covered by the deal, and to raise the estimated $1 trillion needed to help countries weather the “economic tsunami” caused by the pandemic,” Oxfam International said.
The charity organization and others have called for cancellation – not just suspension – of poor countries’ debts in 2020.
With the agreement, a source familiar said, “It would cover $12 billion to $14 billion in bilateral debt service payments owed by the 76 IDA (International Development Association) countries, plus Angola, through the end of the year.”
The poverty-stricken countries will be hardest hit by the pandemic as they have weak health systems and have seen a massive outflow of capital since the crisis began. Many have also been swayed by a sharp fall in commodity prices.
To move ahead on debt relief, Georgieva welcomed the G20’s “exceptionally rapid” decision. In a new International Monetary Fund document, Georgieva said debt relief was in the interest of all, “as the global community is as strong as its weakest member in a global pandemic.”
PRIVATE CREDITORS ALSO ENGAGED
IIF (International Institute of Finance) said, “Private creditors will join the debt relief effort on a voluntary basis which represents 450 banks, hedge funds, and other global financial firms.”
That is crucial since countries had been not willing to offer debt relief if countries could use the freed funds to service private-sector debts.
On Tuesday, a French finance ministry official said that private creditors had agreed to roll over or refinance $8 billion of the debt of the poorest countries, on top of the roughly $12 billion in debt payments to be suspended by bilateral creditors.
Bruno Le Maire, the French Finance Minister, told reporters, “A further $12 billion is owed to multilateral lenders, mainly the World Bank”, although he provided no details.
President at the World Bank Group, David Malpass said, “The Bank, the IMF and other multilateral lenders were exploring options for suspending their debt service payments while maintaining high crediting ratings on their bonds.”
In a joint statement, Malpass and Georgieva said, “This is a powerful, fast-acting initiative that will do much to safeguard the lives and livelihoods of millions of the most vulnerable people.”
G20 said that the debt suspension will last until the end of the year but creditors will consider a possible extension during 2020, taking into account a report on countries’ liquidity needs by the World Bank and the IMF.
Jubilee USA Network non-profit’s executive director Eric LeCompte estimated the agreement could ultimately result in $25 billion of relief for the poorest countries.
Some $18 billion in new resources was “urgently” seeking by the IMF for the Fund’s Poverty Reduction and Growth Trust for poverty-stricken countries and was analyzing the use of special drawing rights to bolster its $1 trillion in lending capacity, Georgieva said in a statement to the G20 leaders.