Context: Highlighting the Debt Service Suspension Initiative as an important outcome under the G20, this meeting declared G20 Action Plan as the mainstay of the G20’s economic response and shared that it not only coordinates our immediate response, but also guides our long-term recovery efforts. They also updated G20 Action Plan to support the global economy through Covid-19.
Updated global action plan includes:
- Extending the Debt Service Suspension Initiative to June 2021 to help developing countries finance their coronavirus response and recovery programmes
- Agreement in principle to a historic Common Framework for Future Debt Treatments to provide debt restructuring to vulnerable countries on a case by case basis – bringing together G20 and Paris Club official creditors for the first time
- Supporting the World Bank Group’s initiatives to make available $16 billion of fast track financing for developing countries’ access to COVID-19 tools, with the aim of supporting equitable and affordable access for all
G20 Debt Service Suspension Initiative (DSSI)
- The main goal of the DSSI is to allow poor countries to concentrate their resources on fighting the pandemic and safeguarding the lives and livelihoods of millions of the most vulnerable people.
- Borrowers therefore commit to use freed-up resources to increase social, health, or economic spending in response to the crisis.
- Beneficiaries also commit to disclose all public sector financial commitments (involving debt and debt-like instruments).
- The IMF and the World Bank are supporting the implementation of the DSSI—by monitoring spending, enhancing public debt transparency, and ensuring prudent borrowing.
- In April, the World Bank’s Development Committee and the G20 Finance Ministers endorsed the Debt Service Suspension Initiative (DSSI) in response to a call by the World Bank and the IMF to grant debt-service suspension to the poorest countries to help them manage the severe impact of the COVID-19 pandemic.
- COVID-19 has triggered the deepest global recession since World War II.
- Debt-service suspension with broad and equitable participation is urgently needed to allow low-income countries to concentrate their resources on fighting the pandemic.
Which countries would the G-20 debt service suspension apply to?
- Eligible countries would include all IDA (International Development Association) countries and all least developed-countries (as defined by the United Nations) that are current on debt service to the IMF and the World Bank.
How much do highly-indebted countries owe in bilateral debt?
- Preliminary estimates suggest that official bilateral debt service payments alone in these countries total almost $14 billion in 2020, including interest and amortization payments.
- Less than $4 billion of this is owed to Paris Club members, so it will be critical to have broad and equitable participation of all official bilateral creditors to make a difference.
- The Paris Club is an informal group of official creditors whose role is to find coordinated and sustainable solutions to the payment difficulties experienced by debtor countries.
- As debtor countries undertake reforms to stabilize and restore their macroeconomic and financial situation, Paris Club creditors provide an appropriate debt treatment.
- There are 22 permanent members of the Paris Club, and other official bilateral creditors may participate. Paris Club permanent members are: Australia, Austria, Belgium, Brazil, Canada, Denmark, Finland, France, Germany, Ireland, Israel, Italy, Japan, Korea, Netherlands, Norway, Russian Federation, Spain, Sweden, Switzerland, United Kingdom, United States of America.
- (INDIA and CHINA are not its members)
How can a debtor country have its debt treated by the Paris Club?
- Paris Club creditors provide debt treatments to debtor countries, which is debt relief by postponement or in the form of rescheduling or reduction in debt service obligations during a defined period (flow treatment) or as of a set date (stock treatment).
- It provides debt restructuring only to debtor countries that need debt relief and that have implemented and are committed to implementing the reforms necessary to restore their economic and financial situation. (This means in practice that the country must have a current program with the IMF supported by a conditional arrangement.)
- Group of 20 (G20) is an international body created in 1999 that provides a forum for strategic economic communication between industrialized and developing countries.
- The G20 originated as a response to the economic crises of the late 1990s.
- It expanded on the work of the Group of Seven (G7) by including countries that previously had been left out of the global discussion.
- G7: Canada, U.S., U.K., Italy, France, Germany and Japan – the seven largest advanced economies.
- Earlier it was G-8 when Russia was suspended from it because of Russia’s annexation of Crimea, a part of Ukraine.
- Its membership comprises 19 countries (Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, the United Kingdom, and the United States) and the European Union (EU).
- The countries are represented by finance ministers and central bank governors, while the EU is represented by the European Central Bank and a rotating council presidency.
- The World Bank and the International Monetary Fund also participate.
- Meetings are held annually, and each summit meeting is hosted and chaired by a different member.
- In addition, emergency summit meetings may be called.
- The issues that have been addressed by the group include terrorism, economic circumstances, corruption, tax transparency, economic inequality, renewable energy, and sustainable development.