G20 receives 46 debt relief applications as countries fight Covid-19 pandemic

G7 finance ministers back an extension of the G20's Debt Service Suspension Initiative (DSSI) to support the world's poorest nations

International Financial Architecture Working Group Meeting. Courtesy Ministry of Culture and Information, Kingdom of Saudi Arabia

The G20 said on Friday the number of eligible countries asking for debt relief rose to 46 applicants since April from regions all over the world as the Covid-19 pandemic continues to take its toll on the global economy.

Africa made up the bulk of the applications with 30 nations seeking assistance under the G20's Debt Service Suspension Initiative (DSSI), which began in April and runs until the end of the year, the G20 said in a statement.

“All major official bilateral creditors remain committed to suspending due debt service payments to the most vulnerable countries in these challenging times," Bandr Alhomaly, the G20 Presidency International Financial Architecture Working Group (IFA WG) policy lead, said. "These commitments are complemented by the support of the International Monetary Fund (IMF) and Multilateral Development Banks to DSSI-eligible countries.”

The group of 20 major economies, which is currently headed by Saudi Arabia under a rotating presidency, in April agreed to a time-bound suspension of debt repayments to help poor nations strengthen their healthcare infrastructure and deal with the economic effects of the pandemic.

The initiative stands to benefit 73 members of the International Development Association on a debt service plan with the IMF and the World Bank, as well as the least developed nations as defined by the United Nations.

So far, the initiative has helped 43 countries defer $5 billion (Dh18.36bn) in official debt service payments, freeing up funds to finance social, health and economic measures in response to the pandemic.

Measures to curb the spread of the virus, which has infected more than 32.7 million people worldwide according to Worldometer data, have hit poorer countries particularly hard and could push up to 100 million people into extreme poverty in 2020, according to IMF projections.

The G7 finance ministers said they back an extension of the G20's debt relief scheme given the ongoing financial needs of low-income countries, according to a joint statement on Friday.

In its September 25 meeting, the G20 International Financial Architecture Working Group said it would present its recommendation on the feasibility of extending the DSSI beyond 2020 to the G20 finance ministers and central bank governors during their next meeting on October 14.

It also discussed efforts to further develop risk insurance and boost private sector investment, especially in low-income countries, according to the statement.

The historic level of capital outflows from emerging markets due to the Covid-19 pandemic and ways to restore sustainable flows of capital and develop domestic capital markets was also discussed by the working group.

"As we begin to look towards a stronger, more resilient recovery, the G20 is exploring structural approaches to secure longer-term financing to developing countries, including through the development of domestic capital markets and crowding-in private sector investments," Mr Alhomaly said.

The DSSI provides an estimated $14bn of immediate liquidity relief by bilateral official creditors alone in 2020. The G20 is also working with international organisations  to complement these efforts. This includes multilateral development banks who are planning to commit $75bn for DSSI-eligible countries over the period between April to December 2020 alone, as part of their $230bn commitment for emerging and low-income countries in response to the pandemic.

In addition, since late March, the IMF has provided debt relief to 28 DSSI-eligible countries and also provided financial assistance of more than $88bn to 81 countries, 53 of which are DSSI-eligible countries.