The G20 major economies will agree to extend a coronavirus debt service freeze for poor countries for at least six months beyond the end of 2020 and adopt a common approach to longer-term debt actions, a draft communique seen by Reuters showed on Tuesday.
In the draft, finance ministers and central bankers from the Group of 20 countries said they would carry out a review in April on whether a further six-month extension was needed. They agreed in the draft, which was prepared for a virtual meeting of G20 finance ministers and central bank governors on Wednesday, to take a coordinated approach and adopt a “common framework” for debt actions to be taken beyond the group’s Debt Service Suspension Initiative (DSSI) that was approved in April.
The COVID-19 pandemic has hit developing countries and emerging market economies particularly hard, exacerbating already high debt levels and driving a growing number of countries to the brink of default. The draft said the DSSI initiative, which offered to suspend official bilateral debt payments by the poorest countries, had facilitated significantly higher spending to combat the pandemic and its economic fallout.
The initiative has seen more than 40 of 73 eligible countries defer some $5 billion in debt payments, but that is far less than the $12 billion that would have been generated if more countries had participated. Experts say a big problem has been the lack of participation by the private sector, and the failure of G20 member China to participate fully with all of its state-owned institutions, including the China Development Bank.
The draft communique touched on both issues, urging all official bilateral creditors to “implement this initiative fully and in a transparent manner.” It strongly encouraged private creditors to participate when requested. World Bank President David Malpass told a panel at the annual meetings of the International Monetary Fund and World Bank that the Bank was committed to providing sufficient fiscal space to countries facing debt distress through grants.
He said it was also critical to accelerate debt restructurings that would be needed, noting that the process had taken around seven years in the past.