G20 backs temporary debt relief for world’s poorest nations

The Group of 20 leading economies agreed to provide temporary debt relief to the world’s poorest countries and backed an International Monetary Fund proposal to set up emergency liquidity lines for emerging markets buffeted by the coronavirus crisis.

In a communique issued after a teleconference meeting, G20 finance ministers and central bankers said the moratorium on debt payments would begin on May 1 and last through the end of the year. They also asked private creditors to join them.

“We support a time-bound suspension of debt-service payments for the poorest countries that request forbearance,” said the group, which collectively accounts for roughly 85 per cent of global output.

The G20’s endorsement is critical because the group includes some of the poor nations’ biggest governmental creditors, most prominently China, a major lender through its Belt and Road Initiative. The move is intended to free up scarce resources for less-well-off countries to use in fighting the virus.

While the group also backed the establishment of short-term IMF liquidity lines for countries with strong economic fundamentals, it stopped short of supporting a plan for a new issue of the fund’s Special Drawing Rights – its reserve assets.

That proposal, which would be designed to boost liquidity worldwide, reportedly was opposed by the US, a key G20 member.

Saudi Finance Minister Mohammed Al-Jadaan reckoned that the G20 debt relief for the world’s poorest countries is worth about $20bn, he told reporters via Twitter after the meeting.

Possible extension
The group said in its communique that it would consider a possible extension of the moratorium, taking into account analysis of debtor countries’ liquidity needs by the IMF and World Bank.

“This is a powerful, fast-acting initiative that will do much to safeguard the lives and livelihoods of millions of the most vulnerable people,” IMF managing director Kristalina Georgieva and World Bank president David Malpass said in joint statement.

The two had pushed for the debt moratorium.

“Just seeing how the G20 united around debt standstill for the poorest members gives me that confidence that whatever is necessary we will collectively do in the face of this tremendous crisis,” Georgieva later told reporters in a webcast news conference.

The Institute of International Finance estimates that the world’s poorest nations have some $140bn in general government debt-service obligations due through the end of the year, including $10bn in foreign currency. That calculation includes all kinds of debt: to private and public creditors, domestic and foreign, short term and long term.

Temporary suspension
The institute – a global trade association that counts the world’s biggest banks and financial institutions as members – last week said it was willing to join a temporary debt-payment suspension for poor countries, and president Tim Adams welcomed the G20 announcement today.

“The spread of Covid-19 has created an unprecedented health-care and humanitarian crisis, making servicing and managing debt obligations close to impossible for vulnerable nations,” he said in a statement.

France is pushing leading economies to go beyond granting poor nations a temporary moratorium on their debt payments. President Emmanuel Macron on Monday called for a massive cancellation of African nations’ sovereign debt.

The world’s poorest countries, which are eligible for aid from the World Bank’s International Development Association, comprise 76 countries with many in Africa but also elsewhere, including Afghanistan, Cambodia, Haiti, Kosovo and Syria.