As G20 finance ministers are preparing to meet online on July 18, scores of business, labor groups and faith leaders from the UK are calling for the cancellation of debts owed by the world’s poorest countries, which are facing the worst effects of the Covid-19 pandemic.
The International Chamber of Commerce, a global trade union and civil society groups have urged the Group of 20 major economies to extend and expand a freeze in debt service payments to the poorest and middle-income countries to help them weather the coronavirus pandemic and its economic fallout.
At a meeting in April, the G20 finance ministers agreed to temporarily suspend debt payments for 77 countries. Now, faith leaders’ letter urges debt payments for this year and next year to be cancelled. The necessity for debt restructuring is acutely felt on a global scale but needs to be assessed on a country-by-country basis to help heavily indebted countries hit hard by the outbreak.
As the global economy faces an even deeper downturn than projected in April with estimates of up to $8.8tn (£7.1tn) in projected costs, the G20 and Paris Club of creditors announced a freeze in debt service payments for the world’s 73 poorest countries through year-end.
Whether these measures will be sufficient to offset the catastrophic effects of the pandemic on entire sectors and economies is too soon to determine. However, the ICC, International Trade Union Confederation, and Global Citizen, a group pushing to end extreme poverty by 2030, have made an appeal to G20 to attempt to boost the participation of private creditors, who have been slow to engage.
So far, 41 countries have applied for relief from debt servicing under the G20 Debt Service Suspension Initiative (DSSI), and the Paris Club has signed agreements with 20 countries, including Ivory Coast, Ethiopia and Pakistan.
At the same time, many countries not eligible for the moratorium remain at risk of debt distress given the shocks caused by the viral outbreak, the group said.
In order to offset the losses incurred by capital markets, major economies can boost contributions to enable the International Monetary Fund to continue providing debt service relief to its poorest members through April 2022, by creating similar instruments at regional multilateral development banks.
An additional request by debtor nations called for the creation of voluntary central credit facilities. These could serve as senior debt instruments to collect all interest and principal payments, with equal treatment of creditors in the form of proportional interest in the facility.