The World Bank headquarters
The US - which is the biggest shareholder in the World Bank - opposes the inclusion of loans by multilateral development banks in any debt restructuring. Image Credit: AFP

Washington: The World Bank arm that provides help to the poorest countries plans more concessional loans and grants to nations facing higher risks of debt distress, a move that could unlock impasses hindering the restructure billions of dollars of debt held by low-income nations.

The plans for the lender’s International Development Association were announced Wednesday following a meeting of creditor and debtor nations known as Global Sovereign Debt Roundtable - a forum helmed by the International Monetary Fund, World Bank and the 2023 Group of 20 president India to iron out issues with handling debt restructurings for cash-strapped nations, including sticking points in the G-20’s own so-called Common Framework on tackling debt relief.

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The IDA’s provision of positive net flows and “implicit debt relief through increased concessionality and grants to countries facing higher risks of debt distress was welcomed,” roundtable participants said in a statement.

China - the biggest bilateral creditor to poor countries - had pushed to reschedule payments rather than take losses and also wanted multilateral development banks to accept so-called haircuts, or otherwise participate more in debt relief.

The US - which is the biggest shareholder in the World Bank - opposes the inclusion of loans by multilateral development banks in any debt restructuring, arguing that any haircut would undermine those bodies’ ability to respond to crises and make concessional loans.

It’s not clear whether Beijing has dropped the demand altogether. But the nation has decided to soften “relevant positions” given broader diplomatic considerations, according to a person familiar with the matter.

The roundtable discussions were aimed at ending a deadlock among the biggest creditor nations on how to renegotiate poorer nations’ debt, which had become unsustainable amid surging inflation and a stronger dollar.

More than 70 low-income nations face a collective $326 billion burden. About 15 per cent of low-income countries are already in debt distress and another 45 per cent face high debt vulnerabilities, and the list is growing.

Besides China and the chairing organizations, other participants in the roundtable included official bilateral creditors such as Paris Club chair France, Japan, and the US, as well as debtor countries like Ecuador, Ethiopia, Ghana, Sri Lanka, Suriname and Zambia. The Institute of International Finance, International Capital Markets Association, Blackrock and Standard Chartered represented the private sector.

Roundtable participants plan more work on cut-off dates, formal debt-service suspension, how to treat arrears, and the scope of debt to be restructured, including domestic loans.

“This work will also help in clarifying potential timetables to accelerate debt restructurings,” the participants said in the statement.