G20 falls short on debt relief for poor countries

Support for the world’s poorest countries in the form of debt suspension from the G20 group of wealthy nations has fallen far short of what was expected early in the coronavirus crisis, with just $5.3bn in bilateral debt repayments due to be suspended this year.

That is much less than the $11.5bn or more hoped for from official creditors; in addition, no countries have asked private creditors for similar treatment, despite strong encouragement to do so from the G20 and from debt campaigners.

The G20 released the figure after a meeting of its finance ministers and central bank governors on Saturday, to an acrimonious response.

David Malpass, president of the World Bank, criticised the group for falling short on debt relief and said more needed to be done. 

World Bank data shows that the 73 countries eligible for the G20’s debt service suspension initiative (DSSI) launched in May could postpone payments worth $11.5bn this year, and that 41 countries have so far applied to do so, for a total of $8.8bn.

This is at odds with the G20’s statement that 42 countries have asked to defer payments worth $5.3bn. Of that, almost $2bn will be deferred by China alone, according to a breakdown of the numbers seen by the Financial Times.

The total does not include lending by the China Development Bank, according to the breakdown document, which said that “China encourages the CDB to participate in the DSSI [as a commercial creditor] on comparable terms”.

Mr Malpass said “all official bilateral creditors, including national policy banks, should implement the DSSI in a transparent manner. For example, full participation of the China Development Bank as an official bilateral creditor is important to make the initiative work.”

He said the G20 should do more to secure transparency and compatible treatment, to “avoid the secretive reschedulings that are under way in some countries, such as Angola and Laos, often with undisclosed grace periods and terms.”

He also urged the G20 to extend the DSSI into next year and to go beyond debt service suspension and “open the door to consultations about the debt overhang itself and effective ways to reduce the net present value of both official bilateral and commercial debt for the poorest countries.”

If it did so, it would almost certainly make bilateral debt relief dependent on similar treatment by private creditors, which many sovereign borrowers have been reluctant to request for fear of damaging their creditworthiness and therefore their access to international capital markets.

Governments in emerging markets have raised almost $90bn by selling bonds on global markets since April 1, according to the Institute of International Finance, often at interest rates lower than those available before the coronavirus outbreak thanks to the trillions of dollars pumped into capital markets by the US Federal Reserve and other advanced economy central banks.

Debt campaigners reacted in dismay to the G20 statement and to the World Bank’s response.

“I’m surprised that the World Bank as one of the stewards of global development isn’t seized by a greater sense of urgency,” said Gayle Smith, president of the One Campaign and a former special assistant to President Barack Obama. 

She said the Bank was taking in more in debt repayments from poor countries than it was disbursing in emergency lending and should join bilateral creditors in their debt service standstill. She also criticised the lack of transparency and confusion over the amounts of debt benefiting from the G20 initiative. 

“If I were in my old seat I’d be tempted to ask what in God’s name is going on if we can’t even pin down the numbers,” she said. “As if we needed another reminder that the world is not acting globally, here’s another one.”