The G-20 says the extension will provide ongoing relief for the $14 billion in debt payments that would have come due at the end of the year otherwise.
(The African Stand) — Finance ministers and central bankers from the Group of 20 wealthy nations agreed to a bare-bones debt relief package on Wednesday that will extend the G20’s Debt Service Suspension Initiative (DSSI) by six months until June 2021.
The group said they would reconvene in April to determine “if the economic and financial situation requires to extend further the DSSI by another 6 months,” according to the final communiqué published at the conclusion of yesterday’s virtual summit.
While the group said it remains “committed to continuing working together to support the poorest countries” they were seemingly unable to come up with anything other than a lowest-common-denominator debt relief package that fails to address even the most modest requests made by low-income borrowing countries in Africa and other regions.
The G20 statement also echoed the frustrations expressed by World Bank President David Malpass in recent weeks. He has complained about China’s apparent unwillingness to do more within the DSSI framework. An accusation that Beijing, by the way, vehemently denies.
Using language that is clearly targeted at China, the G20 said: “All official bilateral creditors should implement this initiative fully and in a transparent manner.” China is the world’s largest bilateral creditor and is negotiating its DSSI settlements outside of the G20, according to new research by the New York-based research firm Rhodium Group.
Another potential point of contention between China and the rest of the G20 relates to the group’s desire to implement a “common framework” for debt relief beyond what’s covered by the DSSI. China has indicated repeatedly that it prefers bilateral settlements and does not agree with broader debt relief initiatives that are now being promoted by the G20 and other wealthy donor states in the Group of 7 and the Paris Club.
Why the International Donor Community’s Efforts Are Falling Short:
- NOT ENOUGH TIME: Given the enormous scale of the challenges, borrowing countries had requested at least a full debt service suspension. Six months isn’t that much time and injects more pressure/uncertainty into the market.
- NO SPECIAL DRAWING RIGHTS: The finance ministers and central bankers seemingly went out of their way to avoid any reference to increasing the IMF’s Special Drawing Rights that could help to resolve the worsening liquidity crisis that most borrowing countries now confront. This has been a consistent request from borrowing countries but it appears that U.S. efforts to prevent new SDRs have been effective.
- NOT ENOUGH MONEY: “I worry that the IMF’s agenda this fall is far less ambitious than the current shock demands,” said Brad Setser, a senior fellow at the Council on Foreign Relations. “One way of framing this point is that the IMF so far has provided less financing to limit the impact the impact of COVID-19 on the world than it provided to Argentina alone,” he added.
- DELAYS BUT DOESN’T REDUCE DEBT BURDEN: The six-month extension does not do anything to reduce the overall debt stock and instead just pushes back the repayment schedule. Given the increasingly dire financial situation many developing countries now confront, a short repayment holiday like this will likely not do very much to change the trajectory of this crisis.