Washington: The G20 group of major economies is poised to extend a multi-billion-dollar debt freeze for the world’s poorest countries to help them weather the coronavirus crisis, and may 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 mapped out their plans in a draft communique seen by Reuters on Tuesday, and are due to finalize the wording when they meet online early Wednesday.
Preparatory meetings among G20 deputies involved “intense” discussions, according to multiple sources familiar with the talks, noting that China, Turkey and India had balked at language that would lock them into future debt writeoffs.
Beijing, the largest new creditor for emerging market economies, objected to adoption of a common framework for dealing with debt concerns beyond the G20 debt moratorium, a move backed by the Group of Seven advanced economies, said one of the sources. “The fight is far from over,” the source added.
Chinese officials said they could not commit to future debt reductions implied by the common framework, since that would be illegal under Chinese law, the source said. One solution may be to note each country’s need to work through “domestic approval procedures” in a timely manner, a second source said.
G20 deputies are due to huddle again early Wednesday, even before the principals gather at 6:30 a.m. ET (1030 GMT) to thrash out the final details, the sources said.
The G20 Debt Service Suspension Initiative (DSSI) approved in April has seen 43 of 73 eligible countries defer just over $5 billion in official bilateral debt payments, but that is less than half the relief that would have been possible if all eligible countries had requested forbearance.
The absence 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.
The World Bank’s chief economist, Carmen Reinhart, speaking at an online forum during the annual meetings of the International Monetary Fund and World Bank, urged parties to “hope for the best and prepare for the worst.” IMF Managing Director Kristalina Georgieva last week said 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 extension of the debt freeze, but say further measures are needed to help middle-income countries not currently eligible for the G20 initiative.
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.