G20 suspends debt payments for poor countries for a further six months

As the COVID-19 pandemic continues to spread, the group comprised of the world’s wealthiest countries has decided to further temporarily suspend debt payments for the poorest countries to offer them some relief.

It means that, in practice, G20 countries will not require those countries to repay US$14 billion by the end of this year, instead allowing developing countries an extra period of time until June 2021 in order that they can use this money to cover the most urgent needs of their healthcare systems.

However, this decision was not particularly warmly welcomed by representatives of development aid organizations because, in their opinion, to bring relief to the poorest countries, the G20 group should completely write-off the debts rather than temporarily suspending their repayment. The G20 countries will meet once again in April 2021 to decide on a possible extension of their decision for another six months.

Before the decision was made, Transparency International, Amnesty International, and a group of different organizations called CIVICUS had warned G20 members that the current financial crisis triggered by the COVID-19 pandemic is the worst experienced by the world in the last century. As a result, the suspension of debt repayments may not be a sufficient measure to tackle the challenges faced by underdeveloped countries, especially given that they will have to spend more to repay their debts than on public services which can save lives.

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Oxfam International also criticized the G20 decision calling it “the bare minimum the G20 could do”. Jaime Atienza, who leads Oxfam´s policy development, research and advocacy on debt, with a special focus in the mounting debt crisis in Sub-Saharan Africa commented that “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.” Not only have development aid organizations expressed their concern about the solution offered by G20, some countries such as Pakistan have also become involved with its government calling for the cancellation of debts in the face of economic crisis.

The IMF has stated that so far 44 countries have applied to postpone their debt repayments with the suspension covering about US$5.3 billion this year. The biggest world lender is China. According to the World Bank, the Chinese held a 63% share of the debt owed by 73 countries belonging to the Debt Service Suspension Initiative (DSSI) at the end of last year whereas in 2013 this was 45%. The DSSI is a mechanism created to help underdeveloped countries to manage their debt.

The total debt of all DSSI members is US$744 billion. The international community has frequently condemned China for the way it treats its banks as commercial enterprises rather than public banks when lending money to poor countries. This has given them discretion with regard to participation in DSSI.

According to a report recently issued by the European Network on Debt and Development, the effectiveness of DSSI is very poor, covering only about 1.66% of debt payments in developing countries in 2020. Moreover, it has proved impossible to persuade many private lenders to participate in the initiative which is why only about 24% of debt payments were covered by the DSSI between May and December 2020.

Apart from the temporary suspension of debt repayments, the G20 appealed to private lenders to join their initiative to bring relief to the poorest countries.