G7 to back debt freeze extension for poor nations: Report

G7 finance ministers are expected on Friday to signal their support for extending a debt relief programme aimed at helping the poorest countries weather the coronavirus pandemic, three sources briefed on the issue said.

The ministers of the Group of Seven advanced economies are set to meet by video conference on Friday to discuss global economic developments and the continued effect of coronavirus, which has infected nearly 32 million people worldwide.

Although the International Monetary Fund (IMF) has argued in favour of extending the debt relief programme’s year-end deadline by a year through to 2021, the G7 ministers are likely to back an initial extension of six months, the sources said.

“There is backing for a six-month extension, and there will be discussion of the broader issue of debt restructuring,” one of the sources said.

The G7 finance ministers’ backing for an extension of the debt moratorium through June 2021 would help smooth the way for a decision by the larger G20 grouping.

The Group of 20 finance ministers are set to meet on October 14, though the decision would likely be formally adopted by G20 leaders at their summit in November.

The G7 will debate the longer-term debt sustainability of the poorest countries that have been crippled by high debt levels even before the pandemic hit, the sources said.

The discussions reflect a growing realisation among the global community that some of them may need to have their debt restructured, they said.

The sources, all of whom have knowledge of G7 deliberations, spoke on condition of anonymity as they were not authorised to speak publicly. No comment was immediately available from the United States Treasury Department, which will host the meeting.

Japanese Finance Minister Taro Aso told reporters on Friday he could not comment on what would be discussed at the G7 meeting.

Good intentions, challenging implementation

Under a programme dubbed the Debt Service Suspension Initiative (DSSI), the G20 economies agreed in April to offer a freeze on debt service payments to the 73 poorest countries through year-end.

According to the World Bank, Pakistan stands to benefit the most in dollar terms from the DSSI, with a potential saving of $2.7bn or 1 percent of its gross domestic product (GDP). In relation to economic size, Bhutan would see the largest positive effect from the debt moratorium, with savings of $206.5m or 8.4 percent of its GDP.

But the implementation of the debt freeze has been challenging, as COVID-19 has hit the poorest countries particularly hard, triggering calls for an extension of the programme.

World Bank President David Malpass said in a blog post last week that although the G20 debt relief initiative was a good start, deeper and more lasting solutions were needed.

“The current debt payment moratorium is too shallow to provide light at the end of the debt tunnel,” he said, adding that the IMF and the World Bank would look at “additional steps on debt to free up resources” at their annual meetings next month.