Representatives from Group of 20 countries gather for a photo opportunity at the 2019 summit in Osaka, Japan (Photo: UN News)

G20 backs new rules to deepen debt help to poor hit by virus

Representatives from Group of 20 countries gather for a photo opportunity at the 2019 summit in Osaka, Japan (Photo: UN News)

The world’s top economies backed a new plan for restructuring the debt of poor countries hit by the coronavirus pandemic to avert a messy wave of defaults.

The common framework for debt treatment was endorsed by the Group of 20 and the Paris Club, according to a G20 statement after an extraordinary meeting of its finance ministers and central bankers.

(Photo: NOW Grenada)

It goes beyond the broad Debt Service Suspension Initiative from earlier this year and will deal with issues on a case-by-case basis. It’s an acknowledgment that the economic and financial damage from the coronavirus will linger for some time and could see more countries run into debt difficulty well into 2021.

The new set of principles, inspired by those of the Paris Club, a grouping of mostly western government creditors, aims to bolster the participation of China and private creditors in debt relief to over 70 of the world’s poorest countries.

“For the first time, all the main bilateral creditors, members or non-members of the Paris Club, will coordinate the debt treatment,” said French Finance Minister Bruno Le Maire. “It will bring more transparency in the debt relief process and involve private creditors, who will need to commit to at least comparable terms.”

French Finance Minister Bruno Le Maire (Photo: The National)

Over the last decade, China and private commercial creditors have become the biggest creditors for low-income countries across the developing world, many of which are now reeling from the pandemic. China, the world’s largest official creditor, was owed almost 60 per cent of the bilateral debt that the poorest nations were due to repay this year.

World Bank President David Malpass has complained that neither China nor bondholders have provided enough debt relief as part of the DSSI, which runs until at least the first half of 2021.

President of the World Bank Group David Malpass (File photo)

In a letter to the G20 on Thursday, the Institute of International Finance, the Washington-based trade group for financial institutions, said that private creditors stand ready to take part in the debt-relief initiative when countries make requests, but that they have received few requests so far.

China “supports all parties to take further common action,” the nation’s Foreign Ministry said on October 30 in a response to questions over its commitment to a common strategy.