Divergence between rich and poor is spiking as countries struggle with collapse in tourism, remittances and oil prices.
The Group of 20 nations, representing the world’s biggest economies, have agreed to extend the suspension of debt payments by an additional six months to support the most vulnerable countries in their fight against the coronavirus pandemic.
The G-20 says the extension will provide ongoing relief for the $14bn in debt payments that would have come due at the end of the year otherwise. Wednesday’s decision gives developing nations until the end of June 2021 to focus spending on health care and emergency stimulus programs rather than debt repayments.
The G-20 announcement was made initially on Twitter during a meeting of the group’s finance ministers and central bank governors and later confirmed at a news conference. The virtual discussions are being held at the start of this week’s meetings of the 189-nation International Monetary Fund and the World Bank, which are also being conducted virtually because of the coronavirus pandemic.
International aid groups expressed disappointment that more debt relief isn’t being provided by extending the moratorium on debt payments for a full year or by forgiving part of the debt rather than merely suspending payments.
“This pandemic has laid bare a glaring and unjust double standard: The world’s wealthiest countries play by one set of rules, and the world’s poorest by another,” said David McNair, executive director for global policy at ONE, an international aid group.
G20 officials argued that the relief that is being provided is helping 46 of the 73 countries eligible, with efforts under way to expand.
Some critics have also complained that China objected to portions of the debt relief plans that have been advanced.
“It is unfortunate that the pressing need for broader debt relief for poor countries is being stymied by the apparent recalcitrance of China, which has become a major creditor,” said Eswar Prasad, an economics professor at Cornell University and a former head of the IMF’s China division. “China has proven a reluctant participant in multilateral debt relief efforts, putting its narrow economic and geopolitical interests ahead of a collective approach to easing the burden on poor countries.”
“We still need to do more,” Mohammed al-Jadaan, finance minister of Saudi Arabia, this year’s chair of the G-20, acknowledged at a news conference after Wednesday’s meeting. “We must ensure these nations are fully supported in their efforts to tackle the COVID-19 pandemic. …We have agreed to extend the debt service suspension initiative by six months.”
Al-Jadaan said there will be further discussions during April’s meetings to decide whether the suspension should be extended for an additional six months. He stressed that the pandemic has threatened the fiscal stability of many countries, particularly the poorest.
Al-Jadaan said another virtual finance ministers’ meeting was planned for next month, before the leaders’ summit on November 21-22, and that it would aim to agree on a framework that goes beyond even the current debt suspension initiative. He did not elaborate.
Transparency International, Amnesty International and a collective of groups called CIVICUS had written to the G-20 finance ministers ahead of their meeting to warn that the world is facing a crisis unlike any in the last century and that debt suspension is only a first step. Though the global economy has begun a gradual recovery with the reopening of businesses and borders, the recovery has been sharply uneven.
The groups urged the G-20 nations to suspend debt payments at least through 2021, saying many of the poorest countries are still spending more on debt payments than on life-saving public services. Some countries, like Pakistan, have called for an outright cancellation of debt payments.
Oxfam International said it believes that the six-month extension was “the bare minimum the G-20 could do.”
“The failure to cancel debt payments will only delay the tsunami of debt that will engulf many of the world’s poorest countries, leaving them unable to afford the investment in healthcare and social safety nets so desperately needed,” said Jaime Atienza, an Oxfam official who manages debt policy.
Oxfam and other groups are also calling on private lenders and investment funds to make similar concessions for the poorest countries by suspending their debt repayments.
The G-20, in a final communique, also urged private lenders to join its initiative for debt suspension.
“We are disappointed by the absence of progress of private creditors’ participation” in the debt relief, “and strongly encourage them to participate on comparable terms when requested by eligible countries”, it said.