After initially responding to the pandemic-induced economic crisis with an initiative to postpone paying developing country debt, the G20 has now returned to the table to come up with a more plausible solution. But the new common framework for sovereign debt restructuring should only be the first step in a longer process.
LONDON – A global collapse in economic activity during the COVID-19 pandemic has dramatically increased the risk of debt distress in many countries, pushing the poorest to the brink. In response, various international organizations have unveiled a number of initiatives to prevent circumstances requiring between an adequate response to the public health crisis and the servicing of existing debts.
More specifically, the G20 has established a Debt Service Suspension Initiative (DSSI), which allows the world’s poorest countries to suspend official bilateral debt service payments until next year. And this month, the leaders of the G20 adopted a new common framework to meet the needs of sovereign debt restructuring on a case-by-case basis.
For poorer countries struggling with the pandemic, debt not only limits their fiscal space to respond to the crisis, but also hinders future development. Faced with the sudden costs of the COVID-19 crisis, many countries that are already struggling to service existing debt have needed new financing, only to find it too difficult or too expensive to borrow more . And even if they do, the additional debt burden will weigh on them for years, limiting their prospects for growth and development.
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