G7 Supports G20 Debt Freeze Extension
Recently, the G7 finance ministers approved an extension of the G20 bilateral debt relief initiative for the world’s poorest countries. They are of the opinion that it needs to be updated to resolve the flaws that are acting as stumbling blocks in its implementation.
They said that the Debt Service Suspension Initiative (DSSI) approved by the G20 countries in April had helped 43 countries delay $5 billion in official debt service payments to free up cash to respond to the pandemic. But the figure falls short of the $12 billion in savings expected initially and reflects just over half of the more than 70 qualifying countries.
The ministers of the Group of Seven developed economies said in a joint statement that they “strongly regret” some countries’ steps to miss participation by classifying their state-owned institutions as commercial lenders.
The reference was directed explicitly at China, which declined to include loans from the state-owned China Development Bank and also from other government-controlled entities in its official bilateral debt totals when negotiating with countries seeking debt relief.
All the members are disappointed by the lack of accountability and commitment from China. The ministers underlined their commitment to working together to help the poorest and most vulnerable countries hard hit by the coronavirus pandemic in an online meeting organized by the US.
The ministers also agreed that some countries would require more debt relief in the future and urged the G20 major economies and the creditors of the Paris Club to agree on terms at the next G20 finance ministers’ meeting next month.
They sought frequent updates on the financing needs of low-income countries from the International Monetary Fund (IMF) and the World Bank. They asked for solutions to the anticipated financing gaps, including through instruments for leveraging access to private finance.
The ministers claimed that the debt relief project should be expanded in the sense of a request for funding from the IMF and called for a new memorandum of understanding and terms of service to strengthen its implementation.
The ministers confirmed that claims listed as commercial under the DSSI would also be viewed as such in future debt treatment and IMF policy enforcement, providing China and others, who have not been entirely open about the reach and conditions of government lending to developing countries, with a stern reminder.
The ministers also reiterated their appeal to private lenders to adopt the debt relief initiative, saying that the absence of private sector involvement has restricted the potential benefits for many countries.
At a time when the entire world is grappling with the severe impact of the COVID-19 pandemic, the extension of the debt relief measures can be seen as a ray of hope, specifically for the developing countries of the world, for it is they who need support the most.