G20 to consider extending debt relief for poorest countries

The current Debt Service Suspension Initiative, aimed at helping poor nations free up capital to fight the pandemic, expires at the end of 2020

Saudi Arabia's finance minister Mohammed Al-Jadaan chaired an online meeting of G20 finance ministers and central bank governors in Riyadh. Reuters.
Saudi Arabia's finance minister Mohammed Al-Jadaan chaired an online meeting of G20 finance ministers and central bank governors in Riyadh. Reuters.

The G20 will consider extending debt relief for the world's poorest countries as policymakers from the biggest economies continue to take “exceptional measures” to expedite a global economic recovery.

The group has made progress on the current Debt Service Suspension Initiative, which runs until the end of this year.

So far, 42 countries have asked for assistance under the scheme, resulting in the deferral of about $5.3 billion (Dh19.46bn) in debt repayments, the group said in a communique on Saturday after an online meeting of G20 finance ministers and central bank governors.

“We will consider a possible extension of the DSSI in the second half of 2020, taking into account the development of the Covid-19 pandemic situation,” the group said.

Saudi Arabia’s finance minister Mohammed Al-Jadaan and central bank governor Ahmed Al Kholifey chaired the talks. The kingdom, the biggest Arab economy, holds the rotating presidency of the G20.

The group is expected to receive a report in October from the International Monetary Fund and the World Bank Group on the liquidity needs of countries eligible for debt relief. This is expected to help the policymakers decide on the next steps.

However, there is need for “further progress and [the G20] strongly encourages private creditors to participate in the DSSI on comparable terms when requested by eligible countries”, it said.

G20 nations agreed to a time-bound suspension of debt repayments in April 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.

Official creditors could provide about $14bn in immediate and critical liquidity relief, the World Bank said earlier this year.

The IMF and World Bank on Saturday urged the group to extend the programme, citing the “increasingly desperate” situation of the countries in need of help.

“Time is short,” World Bank president David Malpass said. “We need to take action quickly on debt suspension, debt reduction, debt resolution mechanisms and debt transparency.”

The world economy is facing its deepest recession since the Great Depression as the pandemic continues to spread. The virus has killed about 603,000 people worldwide and infected more than 14.3 million others, according to Johns Hopkins University.

Although most economies have begun to reopen, the rate of infection is still increasing in parts of North America, Africa and Asia. The IMF projects that the global economy will shrink 4.9 per cent this year before making a sluggish recovery in 2021.

The fund expects the world economy to suffer a cumulative loss of more than $12 trillion (Dh44.1tn) during this year and 2021.

Two thirds of governments have poured about $11tn (Dh40.4tn) into their economies to bring stability to financial markets, support smaller businesses and protect jobs.

The G20 said on Saturday that while the outlook remained uncertain with “elevated downside risks”, economic activity is expected to recover as countries ease their movement restrictions.

“We are determined to continue to use all available policy tools to safeguard people’s lives, jobs and incomes, support global economic recovery and enhance the resilience of the financial system, while safeguarding against downside risks,” the group’s communique said.

“Fiscal and monetary policies will continue operating in a complementary way for as long as required.”

Updated: July 20, 2020 02:12 AM

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