The G20 on Sunday promised to tackle the explosive issue of developing nation debt, but failed to stake out any clear action, infuriating campaigners warning of a looming crisis.
The leaders of the world’s 20 richest nations reiterated their commitment to a moratorium agreed in April and extended last month allowing poorer countries to temporarily stop servicing eligible debt to focus their resources on combating the COVID-19 pandemic.
The so-called Debt Service Suspension Initiative (DSSI) is to be extended through to June 30 next year, the final statement confirmed.
Currently, 46 out of 73 eligible nations have benefited from a suspension of interest payments to the tune of US$5.7 billion.
Although Saudi Arabian Minister of Finance Mohammed al-Jadaan called it “a major breakthrough,” it is a drop in the ocean compared with the US$11 trillion the G20 nations have spent to combat the economic effects of the pandemic.
“While the G20’s reaction in April was rapid, it’s currently lacking urgency,” Oxfam France spokesman Louis-Nicolas Jandeaux said.
The UN had hoped that the extension would run to the end of next year, but instead the G20 said its foreign ministers would review the situation in the spring.
Painfully aware that the DSSI alone would not be enough for some countries, the G20 has agreed a common framework to restructure the debt of certain nations.
That framework has been called “historic,” because for the first time it includes private creditors and China, the world’s leading creditor to poorer countries, accounting for 63 percent of all such loans extended by G20 nations at the end of last year.
However, “it only considers debt forgiveness as a final option — and it isn’t binding,” Jandeaux said.
“There is a lack of participation from private creditors, and we strongly encourage them to participate on comparable terms when requested by eligible countries,” the final statement said.
However, time is running out.
On Wednesday last week, Zambia, facing a refusal by private lenders to temporarily freeze its debt repayments, defaulted.
It is the first African nation to do so during the pandemic.
The same day, Bolivia said it expected to temporarily stop servicing its debts until its economic condition had improved.
Fears are growing that debt crises in developing nations could hamstring their ability to vaccinate their people.
In March, panicked investors pulled out US$82 billion of capital from developing nations in a matter of days.
Since then, they have fallen foul of a vicious cycle of increasing costs to combat the pandemic coupled with diminished income.
Remittances by migrant workers have been particularly hard hit.
As a result, developing nations would this year have access to US$700 billion less of external financing than last year, the Organisation for Economic Co-operation and Development has said.
The DSSI is like “draining out the Titanic with a bucket,” the European Network on Debt and Development said.
The 46 beneficiary nations had a combined debt pile of US$71.5 billion at the end of 2018.
“The list of countries involved is too small,” Jandeaux said.
Middle-income countries like Lebanon are excluded, while others, such as Kenya, have declined to seek DSSI relief for fear of a credit rating downgrade that would see their borrowing costs increase, as happened in Cameroon.
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