Pressure is mounting on the Group of 20 leading economies to act collectively and decisively to counter the economic consequences of the pandemic ahead of a meeting on Saturday of finance ministers and central bank governors.
The UN, the International Rescue Committee and a group of prominent economists have all urged the world’s largest economies to commit more money to help support developing countries through the Covid-19 crisis. Kristalina Georgieva, head of the IMF, recently warned that the global economy was beginning to recover but was “not out of the woods yet”.
But there have been few indications that the body – which has a track record of dealing with global economic crises – will take much fresh action at the weekend. The G20 is riddled with disagreements among members which have stemmed its willingness to deliver globally co-ordinated action.
Finance ministers and central bank governors attending the online meeting this weekend are expected to discuss whether to extend the debt relief initiative they launched in May. It allows the world’s poorest countries to suspend this year’s debt repayments on country-to-country loans made by G20 member governments.
At the moment the scheme requires debtor nations to make delayed payments in full after a one-year grace period; G20 nations could offer additional support in the form of debt restructuring or relief.
Another option which the G20 may consider is whether to extend debt repayment suspensions to a broader range of countries with higher income levels.
However, attendees are widely expected to defer any decisions until their next meeting in the autumn.
A G20 official told the FT: “If the situation worsens, I have seen a strong commitment from [members] that they are willing to extend [the scheme], and you will probably see after the July 18 meeting a signal that we will be discussing that extension before our October meeting based on the liquidity needs of eligible countries.”
A group of independent and prominent economists, including former World Bank chief economist Nick Stern and Ngozi Okonjo-Iweala, a former Nigerian finance minister and World Bank managing director, have drawn up an action plan which they are lobbying the G20 to adopt. It includes asking the IMF to release new allocations of special drawing rights (SDRs) – a proxy for foreign exchange reserve assets that are made available to IMF members in proportion to their share of the global economy – and to provide more debt standstills and relief.
The US blocked discussion of a new allocation of SDRs at the G20 meeting in April, partly because it would benefit larger and richer economies rather than the poorest countries, but the discussion is likely to be revived this weekend.
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“The discussion is, is the SDF the best tool to serve this crisis or do we have other tools at the IMF that could serve us better, and there is some discussion on these tools, including the SDR,” the G20 official said.
Some of the urgency to provide debt relief has diminished since April. Action by the US Federal Reserve and other central banks to pump trillions of dollars into global financial markets has eased funding conditions, helping emerging economies raise fresh debt and refinance maturing bonds at yields sometimes lower than those available before the pandemic.
But campaigners against global poverty contrast G20 inaction this year with the group’s central role in combating the global financial crisis in 2008-09.
“The G20’s current pandemic of impoverished expectations is by partial design,” said Jamie Drummond, co-founder of One, the anti-poverty campaign. “The vast majority don’t even know this meeting or others like it are even taking place.”
Mark Lowcock, UN under-secretary-general for humanitarian affairs, said the global recession was about to “wreak havoc” in the lowest income countries and the response from rich countries was “grossly inadequate”.
“Rich countries have thrown out the rule book when it comes to protecting their own economies. They must apply the same exceptional measures to countries that need help,” he said.
David Miliband, head of the International Rescue Committee, a global refugee charity, said there was a “strategic” choice facing the G20 on funding for “fragile states [which] . . . are not equipped to face the challenge alone”.
The G20 will also discuss possible changes to the global system of taxation of multinationals, but talks at the OECD which aimed to reach a deal on this have stalled. Consequently, finance ministers at the G20 are likely to continue to urge greater co-operation without committing themselves to action.