FILE PHOTO: Kenya Central Bank Governor Patrick Njoroge addresses a news conference at the Central Bank of Kenya (CBK) headquarters in Nairobi, Kenya July 25, 2019. REUTERS/Stringer
October 13, 2020
By Jan Strupczewski, Andrea Shalal and Elizabeth Howcroft
BRUSSELS/WASHINGTON/LONDON (Reuters) – The G20 group of major economies is ready to extend a multi-billion dollar debt freeze for the world’s poorest countries to help them survive the coronavirus pandemic, and will adopt a common approach to dealing with longer-term debt restructurings.
Finance ministers and central bankers from China, the United States and other G20 countries outlined their plans in a draft communique seen by Reuters on Tuesday, and are expected to finalize the wording when they meet online on Wednesday.
The G20 Debt Service Suspension Initiative (DSSI) approved in April has seen more than 40 of 73 eligible countries defer some $5 billion in debt payments, but that is far short of the nearly $12 billion in projected relief if all eligible countries were to participate.
The lack of participation of private creditors also remains a problem, as does the failure of China to fully participate with all its state-owned institutions, according to top economists.
World Bank Chief Economist Carmen Reinhart told an online forum held during the annual meetings of the International Monetary Fund and World Bank the situation facing heavily indebted countries was troubling, and said it was critical to “hope for the best and prepare for the worst.”
IMF Managing Director Kristalina Georgieva last week said that African states alone faced a financing gap of $345 billion through 2023 to deal with the pandemic and its economic impact.
Developing countries have pushed hard for an extension of the debt freeze, but say additional measures are needed to help those countries that are not eligible for the G20 initiative.
Angola’s Finance Minister Vera Daves said an extension of the DSSI would be “very useful.”
Speaking at an online forum organized by the IMF and World Bank, she added that Angola would have a conservative budget to try and keep its debt, expected to top 140% of annual GDP, under control.
At an Institute of International Finance (IIF) online panel, policymakers from Kenya and Costa Rica also expressed support for the scheme, and called for countries like China and Russia – not currently part of the Paris Club government debt relief architecture – to provide more help.
“The desire to rope in all creditors, and particularly China and Russia, I think it is great,” said Patrick Njoroge, Governor of the Central Bank of Kenya.
“China has never really been there and that has always been one of the weaknesses of the Paris Club.”
‘IMF HAS TO HELP’
The G20 draft communique underscores the need for private sector involvement and says all official bilateral creditors should implement the initiative fully and in a transparent manner.
Odile Renaud-Basso, who chairs the Paris Club of official creditors, told a panel during the IMF-World Bank meetings the initiative had provided critical short-term relief, and lauded China’s participation, but said further efforts were required.
“The question is what is next,” she said, adding that some countries that had unsustainable debt levels before the pandemic would likely need “deeper debt relief” that cut their overall debt level – a step that would require the involvement of China and other non-Paris Club members, as well as the private sector.
Costa Rica’s Central Bank President Rodrigo Cubero echoed those remarks, saying it was vital for non-Paris Club lenders to be part of the support and calling for more than just flexible credit lines from the IMF and other institutions.
A new World Bank study on Monday showed that among countries eligible for the G20 debt relief, external debt loads increased 9.5% in 2019 to $744 billion even before the pandemic.
With the coronavirus now savaging economies, the World Bank has warned that 150 million more people could be pushed into extreme poverty by the end of next year.
GRAPHIC: How much debt relief offered – https://fingfx.thomsonreuters.com/gfx/mkt/xklpyqjbwpg/Pasted%20image%201601420726673.png
(Additional reporting by Tom Arnold in London, Rodrigo Campos in New York, and David Lawder in Washington; Writing by Andrea Shalal and Marc Jones; Editing by Andrew Cawthorne and Andrea Ricci)