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Debt and the Economy – Journal

Most national debt indicators are worrying. Significantly reducing the national debt over the remaining two-and-a-half years of the PTI government appears difficult in the wake of the global economic downturn triggered by Covid-19, domestic political instability and worsening geopolitical challenges. That means the economy, which is already struggling to recover from last year’s 0.4% contraction, could continue to suffer from anemic growth.

This is something that policy makers have apparently understood. After resorting to large net foreign and domestic borrowing during the first two years of the PTI government, they are now also trying to raise financial resources which have little or no impact on the level of debt. national. Attracting diaspora income through both remittances and portfolio investments, privatizing state-owned enterprises (EPs), encouraging foreign direct investment (FDI) and attempting to increase tax and non-tax revenue are efforts centered around this objective.

But the volumes of debt are huge and servicing them is expensive. These efforts also require additional debt relief and support from international creditors in the event of external debt and a cautious use of new borrowing in the event of domestic debt.

The economy grew only 1.9% in 2018-19, the first year of the PTI government, compared to 5.5% in 2017-18, the last year of the PML-N government, shared by the interim configuration put in place. in place to organize the general elections of July 2018. .

Debt servicing cost expected to remain lower than last year due to relatively stable exchange rate and lower interest rates

But even this weak growth of 1.9% came at the cost of a 34.6% year-on-year growth in the country’s debt and total liabilities (external and internal), which rose from 29.88 trillion rupees in 2017-2018 to 40.22tr in 2018. -19.

Such weak growth amid a massive accumulation of national debt betrayed the quality of economic management, especially since it all happened before the emergence of Covid-19. What has been more disappointing is that a sharp increase in the government’s domestic and external debt – and not in other components – contributed strongly to this expansion in total national debt and liabilities. This worsened the economic situation in 2019-20, especially after the pandemic hit Pakistan. (The government’s domestic debt rose to Rs20.73tr in 2018-19 from Rs16.41tr in 2017-18 and the rupee equivalent of its external debt also rose to Rs11.05tr from Rs7.79tr.)

This was bound to increase the total debt service need in 2019-20 and it did. In 2019-20, Pakistan had to devote 55% of its tax revenue to servicing domestic and external debt alone. Even in 2018-19, 47% of tax revenue was spent on this, according to budget documents.

When debt service absorbs the bulk of tax revenue, policy trade-offs become limited and painful. The development agenda cannot be pursued well, unemployment cannot be contained, industrial growth cannot be accelerated, agriculture cannot be sufficiently supported, and the service sector must be left to fend for itself. This all happened in 2018-19 and with heightened intensity in 2019-20 – as the first wave of Covid-19 hit the country in the final four months of the fiscal year.

At the start of 2019-20, the PTI government approached the International Monetary Fund (IMF) for balance of payments support after more than a year of dithering. The economic discipline imposed by the IMF has helped the government to limit the growth of its external and internal debt.

As a result, the annual growth rate of total external and domestic debt and liabilities fell to 10.8% in 2019-20 from 34.6% in 2018-19. The government’s external debt (less that of the IMF) increased only slightly from Rs 11.05 tr in 2018-19 to Rs 11.82 tr in 2019-20. Even a huge net increase of around Rs 3.1 trillion in domestic debt in 2019-20 was less than its net domestic borrowing of Rs 4.3 trillion in 2018-19.

Although some national debt indicators showed signs of improvement in the first quarter of 2020-2021, it is too early to predict whether the trend will be able to continue throughout the year. A simple thing to remember is this: the growth of domestic debt can be contained if the tax base widens, if sufficient tax revenue is generated and if current expenditure remains under control. An expansion of external debt can be controlled if foreign exchange earnings from exports, remittances and FDI grow quickly and quickly. An expansion of the tax base and increased tax revenue generation seem less likely due to slow economic growth amid the second wave of Covid-19.

Political instability can also weigh heavily on exports and FDI. Remittances to countries of origin may, however, continue to increase for some time, thanks to effective controls on illegal money transfers and incentives for the Pakistani diaspora to use remittances to invest in securities. government debt and housing programs. Overall, the government’s external and domestic borrowing stock will not decline significantly during the current fiscal year.

But the cost of debt service will certainly remain lower than last year due to a relatively stable exchange rate and the decline in interest rates from 13.25% to 7% between mid-March and the end of June 2020.

The rupee had lost 34.2% in value against the dollar in 2018-19 and another 3.1% in 2019-20. This massive depreciation in 2018-19, followed by a further marginal decline in the value of the rupee in 2019-20, significantly increased the cost of servicing external debt compared to the previous two years, namely 2016-17 and 2017-18.

By contrast, lower interest rates kept domestic debt service costs under control in 2019-20 and the first half of 2020-21.

Debt concerns persist and may even worsen if the rupee begins to decline and its full depreciation over the next two quarters becomes significant. Or if interest rates start to rise and hit double digits. But there is no indication that such things can happen during this exercise.

Posted in Dawn, The Business and Finance Weekly, December 14, 2020

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US Treasury to push COVID stimulus, Chinese debt attendance at IMF meeting – official

WASHINGTON (Reuters) – The U.S. Treasury will urge countries to keep the coronavirus stimulus going at annual meetings of the International Monetary Fund and World Bank next week and will urge China to participate fully in debt relief for poor countries , said a senior Treasury official.

Brent McIntosh, general counsel, U.S. Department of the Treasury, speaks at the 2019 Milken Institute Global Conference in Beverly Hills, California, U.S., April 29, 2019. REUTERS/Lucy Nicholson/Files

In a video interview recorded Tuesday and released Friday, Treasury Undersecretary for International Affairs Brent McIntosh said a strong recovery from the COVID-19 pandemic depended on continued political support.

“We can’t declare victory at this point, we have to keep pushing for reactive measures,” McIntosh said. here Mark Sobel, US Chairman of the Official Monetary and Financial Institutions Forum, a London-based think tank. “So I think our first message at the meetings will be that countries should not withdraw their support prematurely.”

McIntosh said in Tuesday’s interview that he hopes U.S. Treasury Secretary Steven Mnuchin and House of Representatives Speaker Nancy Pelosi can reach an agreement on a new U.S. coronavirus aid package.

Finance officials from the 189 IMF and World Bank member countries will meet virtually next week to discuss the global response to the pandemic and prospects for economic recovery. They will also try to negotiate new measures to strengthen debt relief in order to avoid default crises in poor and highly indebted countries.

IMF Managing Director Kristalina Georgieva said $12 trillion in fiscal stimulus, along with massive monetary easing, made the outlook “less dire” than in June, but the global economy is still facing a difficult exit from a pandemic-induced recession.

CHINA’S DEBT RELIEF

McIntosh said he would pressure Chinese officials to “fully, faithfully and transparently respect” the G20 freeze on official bilateral debt service for the world’s poorest countries implemented this year. .

“China is the biggest bilateral lender here. And so what we need to see from official bilateral lenders is transparency, not imposing non-disclosure agreements, not using secured funding.

He said China should adhere to mutually agreed definitions of official bilateral creditors to include any entity “working at the request of the government”, including government ministries, development finance institutions and credit agencies. export, among others.

McIntosh said the Trump administration still opposes a blanket allocation of new IMF special drawing rights — a move akin to “printing” hundreds of billions of dollars in foreign exchange reserves for all members — because it is not a “targeted or temporary” measure.

But he said the Treasury was encouraging wealthier countries to contribute unused SDRs to an IMF fund to help poorer countries. The Treasury is working with the White House Office of Management and Budget to determine what U.S. assistance package might be offered in this area, he said.

Reporting by David Lawder; Editing by Chizu Nomiyama, Andrea Ricci and David Gregorio

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Global debt expected to reach nearly 100% in 2021 amid COVID-19 crisis, says International Monetary Fund (IMF)

Global public debt is expected to fall from 98% of GDP in 2020 to 100% of GDP in 2021

Global public debt is expected to hit 98% of GDP by the end of 2020, the International Monetary Fund (IMF) said in its latest fiscal monitor update on Thursday, saying public debt in India is expected to remain high at 83% percent. of GDP. The COVID-19 pandemic has posed a severe challenge to public finances, the report said, noting that the resulting contraction in output and lower incomes, as well as emergency lifelines, have pushed up deficits and public debts beyond the levels recorded during the global financial crisis.

Vitor Gaspar, director of the IMF’s fiscal affairs department, told reporters that government revenue had fallen everywhere, government debt had climbed to 98% from 84% before COVID-19. “From 2021, debt stabilizes at a high level and remains well above pre-COVID-19 levels until the end of the forecast horizon,” he said.

According to the Fiscal Monitor report, public debt is expected to remain high at 83% of GDP, underscoring the need for a credible medium-term fiscal framework to build confidence, anchored on revised fiscal targets and revenue mobilization.

Noting that global public debt is expected to increase further – from 98% of GDP in 2020 to almost 100% of GDP in 2021 – driven by advanced and emerging market economies, Paolo Mauro, Deputy Director of the Department of Public Finances of the IMF said with the pandemic still out of control and economies growing below potential, additional fiscal support will be needed in 2021, to protect livelihoods.

“High public debt need not raise immediate concerns about debt sustainability, but highly indebted emerging markets and developing economies may find it difficult to borrow more. market are good, but short-term debt vulnerabilities remain elevated in some developing countries,” he said in response to a question.

To cope with a sharp increase in public debt in developing countries, the international community – including the IMF – provided grants, concessional loans and debt relief in 2020, including for 38 countries considered as “high risk”.

Fiscal adjustment and, in a few cases, debt restructuring should contribute to debt reduction. Almost everywhere, credible medium-term strategies must be developed, with the aim of stabilizing and gradually reducing debt to safer levels over time, supported by pro-growth and inclusive policies, he said. declared.

Gasper said low-income developing countries urgently need funding for social services, health and education, COVID-19 control measures and support for food programs in countries facing the risk of COVID-19. malnutrition. The IMF, he said, is helping and remains committed to providing additional support. Since the start of the pandemic, it has provided financing totaling approximately $105 billion to more than 80 countries, five of which are low-income developing countries. More than $285 billion is committed in total out of a lending capacity of $1 trillion.

Many poor countries need additional support in the form of grants, concessional loans and debt relief. This includes the debt service suspension initiative, but on a case-by-case basis, deeper debt treatments may be needed, including restructuring, Gasper said.

Affirming that the international community must act together to foster inclusive growth, Gasper called for the universal availability of effective vaccines. “Health must come first, and the lifeline must be targeted when needed. COVID-19 will not be under control anywhere until it is under control everywhere. The sooner that happens, the sooner the economic activity will pick up, the sooner the jobs will come back,” Gaspar told reporters.

“Making effective vaccines universally available is the number one priority, Lifeline should be targeted to the most vulnerable and maintained based on developments in the spread of the virus,” he said. In releasing the annual budget monitor update, Gasper called for facilitating the transition to a smart, green, resilient and inclusive growth model. “This applies to support today and becomes even more important as the recovery takes hold,” he said.

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Debt relief boosts Myanmar’s COVID-19 recovery

Author: Sean Turnell, Macquarie University

On July 1, 2020, the European Union and six of its member governments announced a moratorium on the repayment of debt owed by Myanmar. The deal allows Myanmar to “focus its efforts on post-COVID-19 economic recovery” and is worth nearly $100 million, or 20% of Myanmar’s current debt repayment schedule.

Widely relayed in the Burmese press, this gesture reinforces a relationship that has been strained over the past few years. atrocities in Rakhine State and elsewhere, and the possibility that EU trade privileges – vital to Myanmar’s rapidly growing garment sector – could be withdrawn.

The public health impact of COVID-19 in Myanmar has, in fact, been much milder than expected. Infection and death rates are low and more or less in line with the country’s peers in Southeast Asia. Despite early estimates that Myanmar could suffer 2 million deaths and 10 times as many people infected, as of mid-July the country had recorded only six deaths, 341 total confirmed cases and 278 recovered cases.

Given the state of Myanmar’s health administration, these figures almost certainly underestimate the true extent of cases. Yet such an undercount is not likely to be of a large magnitude. The author’s surveys of various hospital and health officials (and funeral associations) reveal that Myanmar really seems to have escaped the worst of the pandemic so far.

But while the health impact of COVID-19 on Myanmar has been relatively light, the same cannot be said for the economic damage. Exports, commodity prices, remittances and tourist arrivals were hit first, followed quickly by just about every other sector of the economy as the government implemented various strict containment measures (if necessary).

Once predicted as Asia’s second fastest growing economy with 6.7% GDP growth forecast in 2020, Myanmar’s economic growth will now fall to just 0.5%. Any comfort in the idea that this is still a positive number is tempered both by the high degree of uncertainty about these estimates and by the sheer magnitude of the growth reversal.

Non-farm employment takes a hit, with up to 5 million jobs lost. Many of these losses occurred in the formal economy, including a significant number in the critical garment sector. Surveys of small and medium-sized enterprises (SMEs) suggest that around half of them fear that their survival is at risk.

In the face of the economic damage of COVID-19, the government of Myanmar is acting with (perhaps surprising) speed and policy coherence. He enacted a series of relief measures centered on the US$2.2 billion “COVID-19 Economic Relief Plan” (CERP), the product of key economic reformers in the Ministry of Planning, Finance and of Industry and endorsed by the new Project Bank facility.

Monetary and financial initiatives will include interest rate cuts, debt rescheduling, new loan programs for SMEs and farmers, prudential bank forbearance and credit guarantees. The plan will also significantly increase health spending, food and cash transfers to the most vulnerable and village-based employment programs and accelerate various infrastructure projects.

One of the most innovative plans is to further boost Myanmar’s digital economy – which is already fueled by high mobile phone penetration rates – by bringing as many government services online as possible. Despite some implementation issues with CERP, it appears to have been effective in countering what might otherwise have been a near collapse in aggregate demand.

Financing these stimulus measures is difficult. The current government has been extraordinarily successful in cleaning up Myanmar’s public finances, which means that much of the spending is made possible simply by increasing budget allocations. Aided by surprisingly resilient bond and gilt markets, a modest reliance on central bank funding (while sticking to the government’s strict timetable to phase out such funding eventually) is also smoothing the way. .

In addition to European Union debt relief, other sources of international aid also play a role in financing Myanmar’s recovery. Under the Debt Service Suspension Initiative (DSSI) supported by the G20 and the Paris Club of creditor countries, Myanmar has received “additional” financial resources amounting to approximately $1.2 billion. dollars. Myanmar also accessed $357 million through the IMF’s Rapid Credit Facility – an amount representing 50% of the country’s IMF quota, leaving an additional $357 million still available for drawdown.

Interestingly – both for this moment and for the longer term relationship – China has offered little aid to Myanmar during COVID-19, though it has lobbied for approval of various Belt and Road Initiative projects. By far Myanmar’s largest creditor, China has so far been singularly insensitive to the needs of a country it so often presents as its “little brother”.

Sean Turnell is an Associate Professor in the Department of Economics at Macquarie University. He is also a Special Economic Consultant to the State Councilor of Myanmar and Research Director of the Myanmar Development Institute.

This article is part of a EAF Special Feature Series on the new coronavirus crisis and its impact.
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G7 supports extension of G20 debt freeze and calls for reforms

WASHINGTON (Reuters) – G7 finance ministers on Friday backed an extension of the G20’s bilateral debt relief initiative for the world’s poorest countries, but said it needed to be revised to address shortcomings. shortcomings that hinder its implementation.

In a lengthy joint statement, ministers from the Group of Seven advanced economies said they “deeply regret” the decisions of some countries not to participate by classifying their public institutions as commercial lenders.

Two officials from G7 countries said the benchmark was clearly aimed at China, which declined to include loans from the state-owned China Development Bank and other government-controlled entities in the total official of its bilateral debt when dealing with countries seeking debt relief.

Ministers also acknowledged that some countries will need further debt relief in the future and urged the Group of 20 major economies and Paris Club creditors to agree on terms by the meeting. G20 finance ministers next month.

“Everyone was disappointed with China’s lack of transparency and engagement,” said an official, who asked not to be named.

In an online meeting hosted by US Treasury Secretary Steven Mnuchin, ministers underlined their commitment to working together to support the poorest and most vulnerable countries, which have been hit hard by the coronavirus pandemic.

They called on the International Monetary Fund and the World Bank to provide regular updates on the financing needs of low-income countries and to propose solutions to expected financing gaps, including through instruments to leverage advantage of access to private finance.

They said the Debt Service Suspension Initiative (DSSI) endorsed in April by G20 countries, including China, had helped 43 countries defer $5 billion in official debt service payments in order to release money to respond to the pandemic.

But the total is well below the $12 billion in savings originally projected and represents just over half of the more than 70 eligible countries.

Ministers said the initiative should be expanded, “in the context of a request for IMF financing”, and called for a new condition sheet and memorandum of understanding to improve its implementation.

The ministers said that claims classified as commercial under the DSSI would also be treated as such in future debt treatments and for the implementation of IMF policies, sternly reminding China and other countries that do not have not been fully transparent about the scope and terms of government loans to the poor. countries.

Ministers also called again on private lenders to implement the on-demand debt relief initiative, noting that the lack of private sector participation has limited the potential benefits for several countries.

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Fitch fears Sri Lanka’s ability to repay foreign debt

Like Moody’s, Fitch says Sri Lanka will struggle to raise the $ 4 billion required each year over the next 5 years for external debt service

Fitch on Friday November 27 became the latest rating agency to cut Sri LankaColombo’s credit rating, expressing concerns about Colombo’s ability to repay its foreign debts.

Fitch said Sri Lanka’s 2021 budget unveiled last week, forecasting a deficit of $ 8.45 billion in 2021, lacked a “credible fiscal consolidation strategy.”

The international rating agency downgraded Sri Lanka one notch to “CCC” instead of “B”, indicating that a default is a “real possibility”.

The downgrade came a day after the Central Bank of Sri Lanka said it estimated the country’s gross domestic product (GDP) would decline 1.7% this year, but Fitch said she was less optimistic and forecast a contraction of 6.7%.

The central bank said Thursday, November 26, that it hopes the country could save around $ 4 billion this year through the ban on non-essential imports such as vehicles.

Import restrictions that were due to expire at the end of this year are now extended for another year, the bank said.

Two months ago, Moody’s had downgraded Sri Lanka’s sovereign credit rating by two notches, saying Colombo would have difficulty obtaining financing to service its large external debt.

At the time, the central bank called Moody’s downgrading “unjustified” and its analysis of error.

The two rating agencies say Sri Lanka will struggle to raise the $ 4 billion required each year over the next 5 years for external debt service amid a budget deficit of 8.9 percent of GDP. ‘next year.

“I think we can manage this fiscal gap, with better opportunities to reissue debt denominated in local and international currencies as they fall due,” Prime Minister Mahinda Rajapaksa said.

During his previous tenure as president from 2005 to 2015, Rajapaksa borrowed heavily from China for infrastructure projects, some of which ended up becoming white elephants.

His government insists they have not been trapped in Chinese debt as Western countries claim, although Colombo has announced plans to get more loans from China as well as India. . – Rappler.com

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Remarks by Under-Secretary-General for Humanitarian Affairs and Emergency Relief Coordinator Mark Lowcock – World

At the high-level event on financing the 2030 Agenda for Sustainable Development in the Age of COVID-19 and beyond – as delivered

New York, September 29, 2020

Zeinab, thank you.

Excellencies, it has been a year of unpleasant surprises.

The virus itself, of course, took us by surprise.

Many were surprised by the severity of the global recession it brought about.

But we were not surprised that this recession hit hardest the fifty or so countries where some 100 million people already survive only thanks to the help they receive from humanitarian agencies like the ones I coordinate.

Some, however, were surprised at how quickly the damage was done.

As David Malpass has just said, for the first time since the 1990s, extreme poverty will increase. Life expectancy will drop. The annual number of deaths from HIV, tuberculosis and malaria is expected to double. The number of people at risk of starvation could also double.

The carnage is concentrated in the most vulnerable countries.

As the new report from goaltenders Bill and Melinda Gates indicates, the past 25 weeks threaten to destroy 25 years of developmental progress.

It is worth remembering what many poor countries looked like 25 years ago. I was working in a country where a quarter of children never saw their fifth birthday, most never went to school, and one in 18 women died in childbirth. Do we really want to get it all back?

No.

All the more surprising, then, that while richer countries have rightly rejected the rules for injecting liquidity and budget support into their own economies to protect their own citizens, they have done so little to protect countries. the poorest – who don’t have the capacity, resources or access to markets to do the same.

It’s surprising at first since everyone knows what to do. Many of the actions needed, especially to mobilize international financial institutions to help the most vulnerable countries, were taken as recently as the 2008-09 financial crisis.

This is surprising in the second place because much of what needs to happen would cost the better-off countries very little in budgetary terms, especially in the short term.

And third, it’s surprising that the richer countries don’t take action now is not just a failure of generosity or empathy. It is an act of self-harm. Like the virus, the problems that will be created by the huge economic contraction we are witnessing will come back to bite everyone. All around the world.

All the poverty, hunger, disease and suffering will fuel grievances and despair. And in their wake will come conflict, instability, migration and refugee flows, all providing relief to extremist and terrorist groups.

The consequences will be far away and will last a long time.

And no one will be able to say that he was surprised by it.

So let’s surprise ourselves in a positive sense.

Let’s take the obvious, inexpensive, self-interested and generous steps to mitigate all of this now.

Protect aid budgets, expand and expand debt relief as Kristalina said, beyond the debt service suspension initiative, issue SDRs and devote them to the poorest countries, and use the balance sheets of shared financial institutions more aggressively to protect the most vulnerable.

Thank you very much.

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Kenya to save $ 245 million with Chinese debt service suspension deal

China is one of Kenya’s largest foreign creditors, having loaned it billions of dollars to build railways, roads and other infrastructure projects over the past decade.

Kenya obtained a moratorium on debt repayment from China which will save him 27 billion shillings (245.23 million dollars) by June, his finance minister said on Wednesday (January 20).

The East African nation last week won a debt relief deal with the Paris Club of international lenders and is seeking deals with non-Paris Club bilateral creditors like China.

China is one of the country’s largest foreign creditors, having loaned it billions of dollars to build railways, roads and other infrastructure projects over the past decade.

Ukur Yatani, the finance minister, said the deal had already been reached, although China said on Monday (January 18) that it was ready to help Kenya get into debt, without giving further details.

“We are not going to pay now, but we are going to pay in the future,” Yatani said in an interview with private radio station Spice FM, referring to the figure of 27 billion shillings which was due.

The impact of the COVID-19 pandemic has hurt Kenya’s tax revenue collection at a time when more of its debts are falling due and it is still grappling with yawning budget deficits.

China has signed debt service suspension agreements with 12 African countries and granted waivers of interest-free loan due to 15 African countries as part of the G20 debt service suspension initiative , its embassy in Nairobi announced on Monday.

Kenya’s total debt jumped to 65.6% of gross domestic product in June 2020, from 62.4% a year earlier, the World Bank said in November. – Rappler.com

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Zambia seeks debt restructuring under common G20 framework

Zambia’s debts include $ 3 billion owed to China and Chinese entities

Zambia, now Africa’s first sovereign default in the era of the pandemic At the end of last year, said Friday (February 5), it had asked for a restructuring of its debt in a new framework supported by the Group of 20 major economies.

The precarious debt burden of a number of African countries has worsened due to the economic fallout from the COVID-19 pandemic. Zambia did not pay a coupon on one of its dollar bonds in November, putting it in default.

The G20 initially offered the world’s poorest countries temporary relief of payments on debt to official creditors as part of its Debt Service Suspension Initiative (DSSI). In November, it is also launched a new framework designed to tackle unsustainable debt stocks.

Zambia is due to start negotiations to establish an aid package with the International Monetary Fund (IMF) next week. And in its statement, the Ministry of Finance said that the treatment of debt under the framework would be based on the debt sustainability analysis prepared in collaboration with the IMF.

All G20 and Paris Club creditors are expected to coordinate their engagement with Zambia through the common framework, the statement said.

Finance Minister Bwalya Ng’andu reiterated his country’s commitment to transparency and equal treatment of all creditors during the restructuring process.

“Our request to benefit from the G20 common framework will hopefully reassure all creditors of our commitment to such treatment,” he said.

Analysts said the request was expected and it was a positive move.

“The key remains to move towards resolving the default and moving towards an IMF program with a credible macro framework,” said Raza Agha, head of emerging markets credit strategy at Legal & General Investment Management.

Zambia’s sovereign dollar bonds were little changed at just over 50 cents on the dollar.

Last week, Chad became the first country to seek debt restructuring under the new framework. Ethiopia has said it will also use the G20 initiative.

Investors tried to assess how use of the framework, which provides for the participation of private creditors, might affect access to international capital markets.

Credit rating agencies have warned that even delaying the payment of coupons on Eurobonds would constitute default.

But some accused private creditors not to do their part in debt relief efforts. World Bank chief David Malpass criticized them for hitchhiking on DSSI relief.

“As the G20 develops this process, it is essential that it compels the private sector to participate,” said Eric LeCompte of Jubilee USA, who advocates for debt relief for poor countries.

Zambia’s $ 3 billion Eurobonds outstanding are not its only debt. It owes $ 3.5 billion in bilateral debt, $ 2.1 billion to multilateral agencies and $ 2.9 billion to other commercial lenders.

He owes around $ 3 billion to China and Chinese entities.

Some private creditors in Zambia have said that a lack of transparency regarding debt to China created an obstacle to their talks with the government.

China has agreed to participate in the G20 common framework, which observers say will require creditors and countries looking to restructure to be more open to information. – Rappler.com

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Zambia requests 6-month Eurobond debt repayment leave

After previously asking for debt relief from China, Zambia now requests suspension of debt service from its commercial creditors

Zambia has asked its international trade creditors for a 6-month debt deferral due to the severe consequences of the coronavirus pandemic, a senior government official told Agence France-Presse (AFP) on Wednesday (September 23).

The government this week requested a suspension of debt service payments for 6 months from October 14 on 3 Eurobonds because its finances had been “seriously affected”, he said in a statement.

The country is in “a very difficult macroeconomic and budgetary situation”, he added.

A finance ministry statement said Zambia had decided to request the G20 debt service suspension initiative and had requested similar relief from its trade creditors.

Africa’s second-largest copper producer has also been hit by declining revenues due to falling metal prices.

“The impact of COVID-19 has been severe, hence a request for a suspension of payments,” Treasury Secretary Fredson Yamba told AFP.

Zambia had contracted 3 Eurobonds for a total amount of $ 3 billion – funds that were mainly spent on infrastructure development such as road construction.

The landlocked southern African country has already defaulted on some loans acquired for several construction projects, including those funded by China, leading to the suspension or abandonment of some.

“This is confirmation that Zambia is bankrupt,” independent analyst Mambo Haamaundu said. “Our cash flow is depleted and now we have to ask investors to give us time.”

Lenders will closely follow Finance Minister Bwalya Ng’andu’s speech on the 2021 budget on Friday, September 25.

“The demand for the status quo is not surprising given the significant external debt service schedule the government faces,” REDD Intelligence Research’s Mark Bohlund said in a note.

Until recently, the Zambian authorities had dismissed growing concerns about the true size of its external public debt, which had put pressure on the value of government bonds.

In July, President Edgar Lungu China’s demand for debt relief and cancellation due to the economic impact of the coronavirus pandemic. – Rappler.com

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Africa’s debt storm – East African Business Week

Staden bus

CAPE TOWN – The COVID-19 crisis is pushing Africa to the brink of financial collapse. African governments are under pressure to continue servicing their external loans, leaving them few resources to deal with a historic pandemic and its economic fallout. Without external support – in particular, a global freeze on repayments – some African economies will succumb under the burden of their debt. The resulting domino effect could jeopardize the development of the entire continent and also harm the richest countries.

The response from the international community so far has been mixed. The most notable milestone to date – the G20 Debt Service Suspension Initiative (DSSI) for the world’s poorest countries – only covers official bilateral debt. But 61% of African DSSI countries’ debt service payments this year will go to private creditors, bondholders and multilateral lenders like the World Bank. And, despite assurances from the G20, some countries joining the DSSI were subsequently downgraded by global rating agencies.

The World Bank has played an unnecessary role here. Although its chairman, David Malpass, recently called for more debt relief and even raised the possibility of cancellation, he has also resisted calls to the Bank itself (one of Africa’s major lenders). ) to freeze debt repayments. Instead, the US-dominated institution seems more interested in scoring political points by urging the Development Bank of China to join the G20 initiative, even if it would actually affect only one. African country.

Geopolitics also derail the promising option of a new allocation of Special Drawing Rights from the International Monetary Fund (its global reserve asset) to unlock additional liquidity. This initiative is meeting resistance from the administration of US President Donald Trump, which fears that part of the funds will be channeled to countries like Iran.

A major problem for Africa is that it now has significant private sector debt. In May, a group of 25 of the continent’s largest private creditors was formed, in consultation with the United Nations Economic Commission for Africa (UNECA). The organization’s executive secretary, Vera Songwe, lobbied for Africa’s debt to be bundled into an instrument resembling secured debt, backed by an AAA-rated multilateral financial institution or central bank. This would save countries time by quickly granting them a two-year repayment freeze to deal with the pandemic, without preventing them from exploiting future credit markets to finance economic recovery.

But private creditors were quick to reject these comprehensive approaches, insisting that African countries’ debt should be dealt with on a case-by-case basis. This risks wasting so much time that many countries could default while they wait, which would be particularly maddening given the large profits these creditors have made by chasing Africa’s skyrocketing returns.

While neither of these proposals is a quick fix, Africa’s debt problem is not unsolvable. The continent’s debt service payments in 2020 amount to $ 44 billion. That’s a lot of money, but it’s a small change from the trillions of dollars that governments in rich countries are pumping into their own economies.

Pious lamentations about how “the poorest countries will suffer the most” accompany the infighting among Africa’s creditors. This answer assumes that if Africa’s plight is regrettable, it is also far away, and the continent will suffer quietly in its corner. Today, such thinking is terribly naive.

Until the start of this year, many African economies were experiencing robust growth. Now, without outside help to weather the COVID-19 storm, these countries could face economic collapse. It will directly affect the rich world in a way they are not prepared for.

For China, the current debt crisis represents its biggest political setback to date in Africa. The mainland’s economic value to China may have diminished somewhat, but its political value as a reliable voice bloc in multilateral institutions is increasing. If Democratic challenger Joe Biden wins the US presidential election in November, China will face concerted pressure within these organizations. And although China has adhered in principle to the G20 DSSI, its candidacy remains fragmentary and opaque.

The political costs are rising. China is currently facing a chorus of debt-related disapproval in Nigeria, both on social media and in the country’s House of Representatives. Nigerian politicians are demanding an audit of every Chinese loan to the country – an unprecedented move in Sino-African relations. If the economic and debt crisis worsens, this hostility will spread across the continent.

In previous difficult times, African opposition parties campaigned against the Chinese presence in their countries. Increased economic chaos can lead not only to an erosion of high-level African support for China in forums like the UN, but also to populist targeting of Chinese businesses and citizens.

The American engagement in Africa has a strong military and counterterrorism component. American policymakers should therefore be concerned that the Islamic State (IS) recently took control of a port in Mozambique. Africa has 1.2 billion inhabitants, with an average age of 19. A continent of adolescents without economic prospects will not be difficult to radicalize.

Europe is already grappling with the scandal of Greek authorities abandoning African migrants, leaving them to die on the high seas. If African economies collapse, Europe will face an unprecedented migration crisis that eclipses that of 2015, which almost sparked right-wing populist takeovers in several EU countries.

The cost of helping Africa weather this debt storm is miniscule, while the costs of not doing so are staggeringly huge. Many European Union member states have joined the DSSI, and they could support its extension when the G20 and the Paris Club of Sovereign Creditors meet again later this year. But avoiding nightmarish scenarios will require innovation. All of Africa’s financial partners, including multilateral institutions, private creditors and governments of rich countries, must join ECA and other African stakeholders to find a comprehensive and rapid solution.

Cobus van Staden is Senior Foreign Policy Fellow at the South African Institute of International Affairs.

Copyright: Project Syndicate, 2020.
www.project-syndicate.org

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Africa must beware of the consequences of a debt moratorium — Quartz Africa

Africa is home to 41 of the 59 countries of the International Monetary Fund Low-income countries. These are structurally more vulnerable to external shocks such as Covid-19. The pandemic is affecting economies as governments implement increasingly aggressive lockdown procedures to stem the rate of spread of the virus. It is also straining the continent’s generally weak national health systems.

At the same time, the global economic slowdown triggered by the pandemic is weighing heavily on key commodity sectors and tourism. These are significant income for many countries in the region.

As a result, the economic impact of Covid-19 has triggered calls various stakeholders for a general moratorium (or moratorium) on all debt service owed to African creditors, whether bilateral, multilateral or commercial. In a letter to the international community, African finance ministers have called for an immediate waiver of all interest payments on public debt and sovereign bonds. In the case of the private sector, ministers identified immediate relief from all interest payments on trade credits, corporate bonds and lease payments. They also called for the activation of liquidity lines for African central banks.

For a continent with a young population, taking measures that increase the cost of financing businesses or infrastructure can be very costly.

These requests formed the basis of a growing story for a general moratorium on Africa’s debt. The IMF and World Bank have so far not publicly supported this call. Instead, they called on bilateral and multilateral creditors of International Development Association countries to provide debt waiver. These initiatives resulted in a statement from the G-20 announcing a debt suspension initiative jointly agreed with the Paris Club. This position provided a measure of assurance to commercial and private lenders. Like the IMF and the World Bank, commercial and private lenders recognize the unintended consequences that a general debt moratorium could have. However, commercial creditors know they must play a role due to the unprecedented scale and nature of the phenomenon we are currently facing.

But if the debt suspension initiative is applied as a blanket solution, it risks costing African countries much of the hard-won gains many have made over the past 15 years. These gains are linked to access to international capital markets and relatively lower cost of borrowing. Many African countries were able to access international trade finance for the first time during this period. This has not only expanded the pool of capital they can tap into, but has also helped build a credit history in international financial markets. As a result, some governments have seen their cost of debt decrease (for example, Ghana has successfully lowered interest rates on its Eurobond issues since 2015).

Nor would the proposed general moratorium be a victimless action. A significant portion of the international capital pool comes from private and public pension plans, educational endowments, charitable foundations and trusts. These institutions have a fiduciary duty to make investment decisions for the benefit of their beneficiaries. These include some of the most vulnerable members of society in both developed and developing economies, such as the elderly, as well as a wide range of employees (some of whom are poorly paid) who save for their retirement. The losses of their investments will affect many in a material way.

What was won

The gains of the last 15 years have not only been in terms of price. Some governments (such as Ghana, Nigeria and Kenya) have even managed to issue bonds with much longer deadlines in the Eurobond markets.

In addition, international business investors have helped develop and deepen local currency credit markets. The development of local currency bond markets has enabled African governments to borrow locally. This reduced their dependence on bilateral and multilateral lenders or the use of short-term paper instruments. Short-term paper instruments must be redeemed within one year from the date of issue.

African governments’ access to domestic bond markets as well as global financial markets is very important for the continued and sustainable development of African economies. The pool of capital that these markets provide is significantly larger than development finance or multilateral resources. In other words, the size of global debt capital markets dwarves the importance of the resources of multilateral organizations.

Even if market access were maintained after a general debt moratorium for Africa, this would likely result in a higher cost of borrowing.

Additionally, since most hard currency debt for the private sector is benchmarked off-sovereign, this has the potential to significantly increase funding costs for growing businesses in the region. Therefore, the repercussions of this action are not only for governments, but also for businesses. For a continent with such a young population, taking steps that could increase the cost of much-needed financing for business expansion or infrastructure investment can be very costly. Business expansion and infrastructure investment are the engines of growth and job creation.

Answers to a solution

In crafting workable solutions, there must be a clear recognition of the critical role that commercial creditors will play in helping Africa emerge from the current crisis and beyond.

The obvious question is to know where the capital will come from to finance public deficits. A rough estimate puts the cost of the pandemic above the $4 trillion mark. Even at $1 trillion, the IMF’s balance sheet is unlikely to be sufficient to help all African countries achieve a more sustainable trajectory.

In this context, it would be ideal to mobilize commercial lenders and investors to help fill the financing gap that many low-income countries, especially those in Africa, are likely to face.

It is rational to expect lenders and investors to understand that time is running out and it takes time to breathe. So, in these unprecedented times, lenders and investors must join the dialogue and be part of the solution to prevent unintended consequences that can be costly for Africa.

Rodrigo Olivares-Caminal, Professor of Banking and Financial Law, Queen Mary University of London

This article is republished from The conversation under Creative Commons license. Read it original article.

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IMF extends debt relief for 28 countries

ANKARA

The International Monetary Fund (IMF) on Monday evening approved a second six-month tranche of debt service relief for 28 low-income member countries under the Catastrophe Containment and Relief Trust (CCRT).

This approval follows the first six-month tranche from April to October “and allows the disbursement of CCRT grants for the payment of IMF eligible debt service from October 14, 2020 to April 13, 2021” estimated at 227 million. dollars, read a statement from the IMF.

“Subject to the availability of sufficient resources within the CCRT, debt service relief could be provided for a total period of two years, until April 13, 2022, estimated at nearly $959 million,” did he declare.

According to the IMF, debt service relief will help countries use “scarce financial resources for life-saving emergency medical and other relief efforts… [to] combat the impact of the COVID-19 pandemic.

The global economy on the rise

On Tuesday, IMF chief Kristalina Georgieva said the global economy was coming back from the depths of the coronavirus crisis.

“But this calamity is far from over,” she warned, saying all countries now face “the long climb – a difficult climb that will be long, uneven and uncertain.” And prone to setbacks.

According to Georgieva, many countries have become more vulnerable as risks remain high, particularly due to rising bankruptcies and stretched valuations in financial markets.

“Their debt levels have increased due to their fiscal response to the crisis and the heavy losses in production and income,” she said.

“We estimate that global public debt will reach an all-time high of around 100% of GDP in 2020.”


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Google’s latest advertising policy restricts debt service ads and bans credit repair ads

Advertising for financial services is difficult. The industry has some of the the most expensive keywords on Google Ads (reaching almost $ 50 per click). More so, he has CPC and CPA higher than almost any other industry on Google.

Even beyond these costs, financiers are increasingly familiar with new regulations and policies in their industry on all sides, and Google is no stranger to this either. Google last week announcement an update of these restrictions. Starting in November, it will no longer run ads for credit repair services. At the same time, advertisers who want to run ads for debt settlement or management services will need to be certified by Google, as well as the governing bodies of where they want to run ads.

Although these rules apply to all advertisers worldwide, only certain countries will be able to request certification through Google. These policies affect anyone seeking to serve ads for these terms, whether they provide debt services directly, are lead generators, or connect consumers to third-party services.

Why is Google making this change?

As the increase in debt reaches new heights, so do a myriad of debt relief and credit repair scams. Unfortunately, too often these scams target the most vulnerable or those most in need of help.

Google search ad for tax break

When searchers turn to Google, it is essential that they are protected from scams or services that will only make their problems worse. By introducing new restrictions and certifications for these advertisers, Google hopes to tackle the bad players in the space.

How To Get Certified To Run Google Ads For Debt Management Services?

Ahead of those policies going into effect in November, Google said advertisers could apply for certification in the coming weeks. However, Google will only allow advertisers from certain countries to apply for certification. At launch, Google will allow certified debt management services to serve ads in the following countries:

  • United States
  • UK
  • Australia
  • South Africa
  • South Korea
  • Japan
  • Spain

In addition to these regional restrictions, advertisers must meet other eligibility criteria in their country. For example, in the United States, Google will only allow ads promoting debt services if the advertiser and provider of those services is an approved nonprofit credit and budget counseling agency, such as defined by 11 US Code § 111.

Google policy for the United States

A full list of requirements for each country is available here.

And after?

Google hasn’t released more details, but we’re watching what will happen. WordStream customers who may be affected can, as always, contact their representative with any questions regarding this transition. This post will also be updated once Google’s certification for debt service ads becomes publicly available.


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BoT adopts targeted, non-generalized debt relief measures for SMEs

BoT adopts targeted, non-generalized debt relief measures for SMEs

Measures postponed until next June for companies that have not fully recovered

Roong Mallikamas, Deputy Governor for Financial Stability and Corporate Strategy Group, Bank of Thailand.

The Bank of Thailand has put in place targeted debt moratorium measures, which are expected to end next June, for small and medium-sized enterprises (SMEs) with a line of credit of less than 100 million baht and with debts. difficulties in servicing their existing debts.

The targeted measures will end on June 30, 2021. This will only apply to the targeted SMEs that cannot cope with the repayment of loans to financial institutions due to the full non-recovery of business operations.

The central bank implemented large-scale debt relief measures on April 23 to help SMEs recover from the fallout from the pandemic, but the measures were due to end on October 22.

Roong Mallikamas, deputy governor responsible for financial stability and corporate strategy, said the central bank would let banks and non-bank companies negotiate with debtors on whether they can repay their debts normally or whether they prefer to continue. the debt moratorium program for another six months.

Banks and non-bank companies will need to collect information on SMEs for the extended debt moratorium by December of this year.

The value of debtors receiving debt relief measures in the formal banking system stands at 6.89 trillion baht, of which 1.35 trillion baht is allocated to SME loans of 1.05 million accounts.

Of the 1.35 trillion baht, 950 billion baht from 319,000 accounts representing 79% of total SME loans are classified as SME borrowers with contracted debt of less than 100 million baht. Commercial banks and non-bank companies are the creditors of this portion of the SME loan.

Of the 950 billion baht, 57 billion baht or 6% of SME loans from commercial banks and non-bank companies are classified as SME borrowers that banks and non-bank companies were unable to contact. .

The majority of SME borrowers say they intend to service their debts normally when the debt moratorium program expires next Thursday, according to the central bank.

“The Bank of Thailand has asked financial institutions to try to contact the 6% of debtor SMEs,” Ms. Roong said. “They will have more than two months or until the end of December to find them [debtors] and offer the option of a debt moratorium for another six months or to service their debts normally. “

She said financial institutions may also consider adjusting debt service terms for clients on a case-by-case basis to avoid an increase in non-performing loans, as well as adopting other tools such as reduced interest on credit cards and personal loans and the suspension of installments.

Borrowers will be able to resume repaying the full amount when the situation returns to normal, Ms. Roong said.

“The Bank of Thailand has been monitoring the situation closely and expects there will not be many defaults in a very short period of time. [cliff effect] after the end of the debt moratorium program, “she said.” This is because debtor SMEs whose creditors are specialized financial institutions, with loans totaling 400 billion baht, will continue to be under the debt moratorium regime for another six months. The majority of debtor SMEs, which owe a total of 950 billion baht to commercial banks and non-bank companies, also intend to repay their debts. “

The main reason for targeted debt moratorium measures, as opposed to general measures, is to avoid long-term negative repercussions, Roong said.

Debtors still bear the interest charges during the debt moratorium, while targeted measures are a way of discouraging moral hazard, as some debtors, who have not been significantly affected by the crisis, may choose to opt out. seize this opportunity to delay the repayment of the debt.

The longer period of the debt moratorium will also negatively affect financial stability, with an estimated cash loss of baht 200 billion resulting from the suspension of principal and interest repayments, Roong said.

With the relaxed lockdowns, each line of business has resumed operations, albeit at a varying pace.

Companies linked to beverages, agriculture, household appliances and petrochemicals have experienced a good recovery, according to the central bank.

In contrast, tourism-related businesses have recovered slowly from pre-crisis activity.

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Zimbabwe: Responsibility for the Debt Management Strategy

The new waiver makes progress towards debt management which analysts say is a step in the right direction towards improving transparency and accountability.

Public debt remains a controversial issue in the country due to its negative effects on economic growth as well as its impact on the delivery of social services.

In addition, ordinary citizens bear the burden in terms of high taxes and other austerity measures designed to ensure unsustainable debt service.

Between 2014 and 2019, the country’s debt was mainly driven by arrears. External arrears fell from US $ 109 million in 1999 to US $ 6.4 billion in 2019.

However, the deputy director of the public debt management office of the Ministry of Finance and Economic Development, Mr. Joseph Medzano, said that the current administration of President Mnangagwa is working to introduce transparency, including the publication of the first Debt Bulletin of 2018, which was released in March of this year. .

“We are making a consistent policy of issuing a debt bulletin and we started with the 2018 one when the current administration took over.

“We recognize the shortcomings in this regard, but we will soon have another one for 2019 when we prepare the national budget. We have also restructured the RBZ debt and halted ZAMCO debt acquisitions,” he said. said yesterday in Bulawayo at a three-day annual multi-stakeholder meeting in Zimbabwe. Debt conference organized by the African Forum and Network on Debt and Development (AFRODAD) and the Zimbabwe Coalition on Debt and Development (ZIMCODD).

Mr. Medzano added that the engagement efforts were also a way to settle the debt, with some token payments having been made to the International Monetary Fund.

During the period 2010 and 2019, Zimbabwe took out $ 3,202 billion in loans. The fuel and power sectors accounted for US $ 1,697 billion, of which US $ 250 million was a guarantee issued by the government in 2018 to finance the office differential between the purchase price of commodities by consumers. importers and sellers.

Compensation for former commercial farmers is now expected to increase external debt by US $ 3.5 billion.

Afrodad’s senior policy analyst Tirivanhu Mutazu said the release of the 2018 debt bulletin, for example, was laudable in promoting transparency and accountability.

“The efforts to increase domestic resource mobilization are also a step in the right direction in debt management,” he said.

He argued, however, that securing natural resources was in bad taste as it would affect future generations who would be deprived of the resources.

Other stakeholders at the conference agreed that there was still room to improve the transparency and accountability of the country’s debt.

Mr. Mutazu added that over the years, the government has adopted a series of debt resolution strategies, including re-engaging the international community and negotiating a comprehensive package of arrears clearance and debt relief. .

These strategies include the Zimbabwe Fast Track Arrears, Debt and Development (ZAADS) Strategy of 2012 and the Lima Strategy of 2015.

“There is also a parliamentary committee on the foreign affairs portfolio, which complements the government’s re-engagement efforts,” he said.

The conference takes place under the theme “Strengthening transparency and accountability in public debt management for sustainable development”.

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China helps Africa pay off debt amid Covid-19 pandemic

Through Jonisayi Maromo October 15, 2020

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Pretoria – The People’s Republic of China has put in place a series of interventions to amortize African countries struggling to honor their debts with Chinese institutions in an attempt to ease the pressure on repayments, the Chinese ambassador said in South Africa, Chen Xiaodong.

“China attaches great importance to Africa’s debt sustainability and the economic and social profitability of projects. By putting ourselves in Africa’s shoes, we have worked to help Africa prevent debt risks and ease the pressure on repayments, ”Chen said.

He was speaking at a dialogue webinar hosted by the South African Institute of International Affairs and the China-Africa Joint Research and Exchange Program.

“China is committed to ensuring effective and high-quality development in Africa in a way that respects the will of the African people and meets their real needs. Covid-19 is exerting increased economic pressure on African countries. “

China is taking the situation “seriously and has made active efforts” to meet Africa’s needs.

“Based on the implementation of the G20 Debt Service Suspension Initiative and within the framework of the China-Africa Cooperation Forum, China declared to cancel the debt of the African countries concerned in the form of interest-free government loans that are due. by the end of 2020, ”Chen said.

“China also calls on multilateral financial institutions and private creditors to increase their support for African countries severely affected by the pandemic, including debt restructuring and a further extension of the debt relief period. “

He said the Export and Import Bank of China, as the official bilateral creditor, has so far signed debt suspension agreements with 11 African countries.

The South African Institute of International Affairs and the China-Africa Joint Research and Exchange Program, an initiative of the Forum on China-Africa Cooperation, are jointly organizing a series of dialogues on promoting Africa-China cooperation.

On Tuesday, Chen said the China-Africa friendship and cooperation emerged stronger from the challenges and difficulties.

“However, some forces with ulterior motives have continued to fabricate the so-called ‘debt trap fallacy’, ‘strategic asset plunder fallacy’ and ‘neocolonial fallacy’ to exert pressure on African countries. and prevent their cooperation with China in 5G and other areas, ”Chen said.

“They are trying to drive a wedge between China and Africa and force Africa to take sides. All of their actions are attributed to the Cold War mentality and the zero-sum gaming mentality. “

He pointed out that China has remained Africa’s largest trading partner for 11 consecutive years. He said bilateral trade between China and Africa reached $ 208.7 billion (Rand 3.4 trillion) last year, 20 times more than in 2000.

African News Agency (ANA)

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The Holy See at the UN calls for debt relief for poor countries

Bishop Gabriele Caccia, Permanent Observer of the Holy See to the United Nations, underlines the importance of developing economic and financial policies that truly serve the common good of all.

By the editor of Vatican News

“Every decision and policy on economic or financial matters has an impact on the lives of individuals, families and the well-being of society as a whole.” With this premise, the Holy See encourages debt restructuring, and ultimately debt cancellation of the most vulnerable countries, to cope with the growing economic imbalances and other crises they face as a result of the pandemic. of Covid-19.

The Permanent Observer of the Holy See to the United Nations, Mgr Gabriele Caccia, launched this appeal on Thursday during the 75e Session of the United Nations General Assembly.

He said in a statement that due to the demands placed on the poorest countries by the debt service and the economic impact of the pandemic, many of them are forced to “divert scarce national resources from basic programs. education, health and infrastructure towards debt payment. . “

Archbishop Caccia reminded the UN, specifically addressing the Commission on Macroeconomic Policy, that his work should reflect on “ethical implications for achieving economic prosperity for all in order to enable every person to prosper and countries to live in peace and stability “. As such, decisions and policies on economic or financial matters which have an impact on the lives of individuals, families and the well-being of society as a whole “must be viewed in a much broader perspective than the only immediate financial gain or success ”.

Covid-19 and the economy

Bishop Caccia stressed that financial inclusion and sustainable development have been affected by the Covid-19 health crisis due to its devastating impact on employment, production and international and national trade. No one, he notes – from states to families and individuals – has escaped the economic hardships caused by the pandemic.

However, some felt the impact more than others. Developing countries, he said, are being hit by “a triple economic shock of collapsing export demand, falling commodity prices and unprecedented capital flight”, in addition to managing the pandemic with often inadequate health systems.

Recover together

To face these difficulties, Bishop Caccia proposes to work together to ensure that the economic “recovery packages” and “regeneration packages” serve the common good. In particular, it highlights two areas that require special attention in turnaround efforts.

The first, according to the Archbishop, are micro, small and medium enterprises. He points out that to revive the economy, funding would have to reach a large number of small and medium-sized enterprises that “are the backbone of economies” in developed and developing countries.

The second sector concerns workers in “informal” employment. He explained that we have a “special responsibility” to those people – men and women – who are made redundant in fields like construction, catering, hospitality, domestic services and retail, among others, and in as such, find it difficult to provide for themselves and their families. Many of them, he notes, turn to charities and religious institutions for help. Others, especially migrants and those without proper documentation, cannot apply for benefits.

Debt restructuring / cancellation

Bishop Caccia said that there is ample evidence that developing countries, faced with the obligation to divert scarce resources towards debt repayment, risk undermining “integrated development, weakening health systems and education, as well as reducing the capacity of states to create the conditions for the realization of basic human rights.

The Archbishop therefore urged the international community to address the economic imbalances between nations by restructuring and ultimately debt “in recognition of the severe impacts of medical, social and economic crises” facing the most vulnerable countries due to of the current crisis. pandemic.

He also called on the international community to fight illicit financial flows (IFFs) which, by diverting resources from public spending and reducing the capital available for private investment, “deprive countries of the resources they desperately need to provide. public services, finance poverty reduction programs. and improve infrastructure.

In conclusion, Bishop Caccia encouraged the UN to “find ways to highlight the broader and ethical implications of economic activity in the years to come” and stressed the need to transform the economy for it to be ” truly at the service of the human person “.

Pope Francis

The Pope has repeatedly stressed the need for a new economic model, especially as countries restart after the Covid-19 pandemic. He has often said that “the only way out of the current crisis is together”.

During his Urbi and orbi for Easter, he specifically addressed the topic of debt relief. “In light of the current circumstances,” Pope Francis said, “that international sanctions be relaxed, as they prevent the countries on which they have been imposed from providing adequate support to their citizens, and that all nations be brought into line. position to meet the greatest needs of the moment by reducing, if not canceling, the debt weighing on the balance sheets of the poorest nations. “

In his last encyclical Fratelli tutti, he spoke about debt relief in the context of the fundamental right of peoples to survive and grow. This right, he said, is sometimes “severely restricted by the pressure created by the external debt”. This debt stifles and severely limits development, he continued. “While respecting the principle that any legitimately acquired debt must be repaid, the way in which many poor countries fulfill this obligation must not end up jeopardizing their very existence and their growth.”

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A good start to debt relief but incomplete by Paola Subacchi

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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The IMF Executive Board approves a disbursement of $ 43.4 million to Djibouti under the rapid credit facility and debt relief under the Containment and Development Trust Fund. disaster relief to cope with the COVID-19 pandemic

IMF Executive Board approves US $ 43.4 million disbursement to Djibouti under the Rapid Credit Facility and Debt Relief under the Containment Trust Fund and disaster relief to cope with the COVID-19 pandemic

May 8, 2020

  • The IMF Executive Board approved a $ 43.4 million loan to Djibouti to support the authorities’ response to the COVID-19 crisis, as well as debt relief under the CCRT, which will generate additional resources of $ 2.3 million over the next five months. , and potentially up to US $ 8.2 million over the next 23 months.
  • IMF support will provide additional resources for essential health and other emergency spending, including social safety nets. It will also help catalyze additional donor support.
  • The authorities are committed to using the additional IMF resources in a transparent manner and to ensuring that spending is well targeted and cost effective.

The Executive Board of the International Monetary Fund (IMF) today approved a rapid credit facility (RCF) disbursement equivalent to SDR 31.8 million (approximately $ 43.4 million, 100% of Djibouti’s quota) to help Djibouti cope with the urgent balance of payments. needs related to the COVID-19 pandemic. It also approved grants under the IMF Containment and Disaster Relief Trust Fund (CCRT) to cover Djibouti’s debt service due to the IMF today as of October 13, 2020, i.e. ‘equivalent of SDR 1.692 million or $ 2.3 million. Additional relief covering the period from October 14, 2020 to April 13, 2022 will be granted subject to the availability of CCRT resources, potentially bringing the total debt service relief to the equivalent of SDR 6.03 million; approximately $ 8.2 million.

The COVID-19 pandemic has significantly weakened Djibouti’s short-term macroeconomic outlook. The country is facing a significant negative external demand shock due to the global recession. Nationally, virus prevention and containment measures further affect demand and supply. Production is expected to contract by 1% in 2020 and the decline in services exports and foreign direct investment has created an urgent need for balance of payments financing in the order of 164 million dollars. The pandemic has also created urgent spending needs, including in the health sector, and is expected to negatively affect government revenues.

Following the discussion by the Board of Directors. Mr. Mitsuhiro Furusawa, Deputy Director General and Acting President, made the following statement:

“The COVID-19 pandemic is having a severe impact on Djibouti, creating an urgent balance of payments and budgetary financing needs. Authorities acted quickly to contain and mitigate the spread and impact of the virus. Their prevention and containment measures and their decisions to increase health and other emergency spending to protect households and businesses affected by the crisis will help limit the economic and social consequences.

“The crisis and the political response will lead to a widening of the budget deficit this year. IMF emergency financing under the Rapid Credit Facility and debt service relief under the Containment and Disaster Relief Trust Fund will provide much-needed liquidity to support the authorities’ response to the crisis. crisis and could catalyze further assistance from the international community, preferably in the form of grants. The authorities are committed to using the additional resources in a transparent manner and to ensuring that spending is well targeted and cost effective.

“Once the crisis subsides, temporary measures should be lifted, with policies refocusing on promoting a strong and inclusive recovery and maintaining medium-term debt sustainability. Addressing and preventing the recurrence of external arrears, speeding up key project operations and reducing public sector borrowing will be essential. Reducing tax expenditures will also be important in creating space for poverty reduction spending. Efforts to strengthen bank balance sheets, improve the business environment, and improve governance and the efficiency of state-owned enterprises will be key to fostering strong and inclusive growth.

More information:

IMF Lending Tracker (request for emergency financing approved by the IMF Executive Board)

https://www.imf.org/en/Topics/imf-and-covid19/COVID-Lending-Tracker

IMF Executive Board Calendar

https://www.imf.org/external/NP/SEC/bc/eng/index.aspx

IMF Communications Department
MEDIA RELATIONS

PRESS OFFICER: Wafa Amr

Telephone: +1 202 623-7100E-mail: [email protected]

@ IMFSpeaker


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Emerging economies call for more ambitious debt relief programs

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Government ministers from poor and indebted countries will this week appeal to their creditors for a much more ambitious debt relief effort as they grapple with the health and economic consequences of the coronavirus pandemic.

They will advocate for greater support from foreign governments and multilateral lenders as delegates gather for the annual IMF and World Bank meetings.

Financial assistance to cash-strapped governments has so far fallen far short of what is needed – and what advanced economies have been willing to do for themselves – critics say.

As Covid spread across the world this spring, the group of major G20 countries struck a deal allowing 73 of the world’s poorest countries to postpone this year’s official bilateral debt repayments for three years. But the broader options have failed as China and the United States have been reluctant to engage in broader collective action.

So far, 43 countries have requested debt suspensions under the initiative, delaying about $ 5.3 billion in payments this year, less than half of the $ 11.5 billion available, according to the Bank. global.

Critics say the debt service suspension has been hampered by confusion and disagreement over who should participate and on what terms. Private sector creditors, including commercial banks and bondholders, are not involved and have continued to receive repayments. China, which has become an important source of loans to poor countries in recent years, has only partially contributed.

Only three of the 43 countries concerned have asked private creditors for comparable debt relief and no agreement has yet been reached according to the IMF.

The G20 is expected to announce an extension of the moratorium on repayments as early as this week. But finance ministers in countries in need of debt relief told the Financial Times much more needs to be done.

“The ability of Western central banks to react [to the pandemic] to an unimaginable extent and the limits of our response capacity are quite shocking, ”said Ken Ofori-Atta, Minister of Finance of Ghana.

Ghana has criticized Western countries for allegedly overlooking the growing crisis in Africa while finding billions of dollars to boost their own economies.

Adama Coulibaly, Minister of Economy and Finance of Côte d’Ivoire, said: “We hope that the [debt service suspension] will be extended for one year so that the initiative can have a real impact.

But Ukur Yatani, Kenya’s finance minister, told the FT that his country would stay away from the initiative. “Delaying our repayments for three years without giving us a break would place a heavy burden on us. We have heavy repayments at this time, ”he said.

Instead, Yatani said his hopes were based on an IMF program Kenya has started negotiating.

Richard Kozul-Wright, director of development strategies at the United Nations Conference on Trade and Development, said that “anything that provides resources that can be used to fight the pandemic in the most vulnerable countries must be fine. welcomed ”. But, he warned, “overall, given the financial constraints these countries face, [the debt service suspension] just looks like a drop in the ocean ”.

Vera Songwe, head of the United Nations Economic Commission for Africa, is coordinating an appeal from African finance ministers for $ 100 billion a year for the next three years to support the stricken economies on the continent.

This is a fraction of the fiscal and monetary stimulus already provided to the United States and Europe compared to Africa’s combined annual economic output of around $ 2.6 billion, he said. she declared.

Although Ms. Songwe would like the initiative to be expanded to benefit more countries, she said a loan guarantee mechanism to reduce borrowing costs for poor countries – which are already prohibitive for many low-income countries. credit rating – would be more powerful.

The “ideal private sector contribution to this crisis” would be for investors to agree “to make less income so that countries can access the resources they need at a lower cost,” she said.

The question is how to finance such an installation. The IMF could launch more of its so-called Special Drawing Rights (SDRs) – a form of proxy reserve asset – but that possibility has been vetoed by the United States.

Ms. Songwe called on G20 central banks to support the idea.

Ghana supports the idea of ​​using the SDRs to help amortize the finances of emerging economies and has been frustrated by what it sees as US opposition to the proposal.

“Not only should we create new SDRs to help us, but a lot of western countries do not use them, which means they could be transferred to us to prevent our liquidity problems from turning into insolvency problems. “said Mr. Ofori-Atta.

Unless this week’s lobbying generates new momentum, however, finance ministers in many developing economies will have to think about how to cope in the coming months as the costs of Covid rise.

“It is unthinkable that in a global pandemic, the world’s poorest countries will have to choose between paying down debt service and keeping their savings afloat,” said Gayle Smith, president of One Campaign against Poverty.

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World Bank chief calls for greater private sector buy-in for G-20 debt relief

The Group of 20 major economies’ debt relief initiative for the world’s poorest countries has progressed well, but further debt relief and greater involvement of private sector creditors is needed, the chairman of the government said on Monday. the World Bank, David Malpass.

Malpass told Reuters in an interview that 35 of the 73 eligible countries are participating in the G-20 debt relief initiative, which will freeze official bilateral debt service payments until the end of the year. , and others have expressed interest.

The G-20 Debt Service Suspension Initiative (DSSI) will free up $ 12 billion in funds that countries can use to deal with health and economic strains caused by the coronavirus, according to a new database from the World Bank.

Malpass said the pandemic had clearly caused a “very serious and lasting setback” to the global economy that was particularly hitting the poorest countries.

Debt relief agreed by G-20 members and the Paris Club of official creditors in April was helping poorer countries, but more measures would be needed to prevent the economic crisis from worsening poverty rates, did he declare.

He did not endorse calls by African countries and others for an extension of debt relief until 2022 and cancellation of some debts, but said more measures would be needed.

“We need to look for ways to further reduce the debt of the poorest countries, and then look at the larger situation facing developing countries,” he said.

He also urged the private sector to increase its participation.

“It doesn’t really make sense that commercial creditors continue to collect, demand and legally enforce payments from (…) the poorest countries that have been hit by both the pandemic and the recessions. deepest economic growth since World War II, “he said. .

Some countries have been reluctant to seek such relief for fear that it could harm their credit rating and access to international capital markets.

Greater transparency about debt levels and creditors could pave the way for increased investments to promote future growth, he said.

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Funding for adaptation at the confluence of the climate crisis, Covid-19 and over-indebtedness

Covid-19 has hit every country in the world, rich and poor alike, but low income countries (LICs) are the hardest hit, and half of them are at high risk or are already in debt. Although in April this year, G20 finance ministers approved a Debt Service Suspension Initiative (DSSI) to provide temporary relief to LICs to help manage the impact of the pandemic, the adoption to date seems limited. The DSSI covers only part of the total debt of LICs. Private sector lenders have largely refused to come forward, undermining government efforts.

On the other hand, climatic disasters are increasing both in frequency and severity. The first line victims are the LICs, with very little adaptability. So far, the mitigation ambition of the main emitters is very low compared to the temperature targets set in the Paris Agreement. The Climate Action Tracker’s “thermometer” predicts a temperature rise of up to 4.1 degrees Celsius by 2100, unless dramatic climate action is taken. Even if this happens, the IPCC 1.5 degree Celsius report made it clear that massive climate damage to lives and livelihoods in LICs is to be expected. This makes the need for adaptation investments immediate and urgent.

However, adaptation funding is extremely poor, despite the commitments made by donors. As the private sector is not very interested in adaptation in LICs due to the ineffectiveness of market instruments and adaptation actions being mostly public goods, international public finance is the best possible source. adaptation. These countries received preferential treatment for support in the Paris Agreement. It should be remembered that the provision of climate finance is a legal obligation for developed countries, under both the Convention and the Paris Agreement, and Article 7.4 has recognized that adaptation is a global responsibility. Faced with this, adaptation financing representing less than 10 billion dollars per year is below, by order of magnitude, the needs of 140 to 300 billion dollars per year by 2030. Despite the promises of a balanced allocation, adaptation finance is less than 20 percent of total climate finance. LIC citizens receive an average of US $ 3 per person per year, or less than a cent per day, according to Oxfam.

The Global Commission on Adaptation (GCA) advocated for investments in adaptation and resilience, finding that benefit-cost ratios of interventions ranged from 2: 1 to 10: 1. However, the private sector’s contribution to adaptation still represents only a meager 3% of their total climate finance, and goes mainly to mitigation. Clearly, there are barriers to investing in climate resilience, including a lack of awareness of its benefits and capacity constraints. The GCA underscored the need to rapidly scale up adaptation finance through international and national sources.

According to the United Nations Conference on Trade and Development, repaying the external public debt of developing countries will cost between $ 2.6 billion and $ 3.4 trillion in 2020 and 2021 alone. ‘amounts to over six billion dollars a year. However, Bangladesh only receives support in the hundreds of millions, compared to domestic investments of more than $ 3 billion per year in adaptation. Clearly, without adequate liquidity support and major debt relief, the global economy, especially LICs, cannot return to pre-pandemic growth levels without risking severe climatic distress and social unrest. In light of these concerns, the G20 called on the IMF “to explore additional tools that could meet the needs of its members as the crisis unfolds, drawing on relevant experiences from previous crises.”

Faced with the persistent poverty of adaptation finance, it is necessary to seek alternative sources. One of those instruments worth considering is a “climate debt swap” option. The global community has had experience with “debt-for-nature swaps” (DNS) since the late 1980s and 1990s in developing countries, where debt relief was linked to investments in reforestation, biodiversity and the protection of indigenous peoples. In Bangladesh, we have the experience of the Arannyak Foundation, established in 2003 under the US Tropical Forest Conservation Act, where part of the debt owed to the United States was converted into local currency for investments in nature conservation. Overall, this instrument could not have much impact on debt reduction due to its very small scale. For example, the share of DNS-derived debt relief by some creditors is tiny, barely 0.3% of total climate finance in 2012. Since then, it has not increased much.

While there is global agreement that adaptation finance is new and additional and largely based on grants for LICs, the question of whether debt for adaptation trade (DAS) can be considered as such is controversial. These debates aside, in this time of global financial crisis, DAS may be an option for the global climate community to explore.

It is argued that, when properly designed and implemented, DAS can be a win-win option for both creditors and debtors. However, it depends on many conditions on both sides. Making DAS a viable and sustainable option requires relatively large amounts of public debt to have an impact on debt reduction. In view of its acceptance, the management modalities, including budget support or via the creation of a dedicated fund, could be decided later.

The International Institute for Environment and Development (IIED) in London, in a recent study, argues that climate and nature debt swaps offer a way to restructure debt while promoting pro-poor growth and debt sustainability. IIED proposes to establish a global expert group to better understand these exchanges.

Another potential source is also being explored to boost adaptation finance. In 2019, the Climate Bonds Initiative (CBI) launched the Climate Resilience Principles, which inspired the issuance of the first bond dedicated to climate resilience by the European Bank for Reconstruction and Development in September 2019, highlighting an opportunity for the creation of a new market for such instruments. But given the experience of the private Green Climate Fund facility and the World Bank’s International Development Association, successful blended finance models are still rare. Debt instruments such as green bonds, including climate resilience bonds, may not be universally applicable or viable in all markets. However, faced with a very limited budgetary space, they can in certain cases offer an essential lever for private financing in the short and medium term for the objectives of resilience.

These questions will likely be raised at the next annual meetings of the World Bank and the IMF on October 12-18. Obviously, the Bangladesh delegation to these meetings should be aware of these issues to share their thoughtful interventions, in alliance with like-minded nations.

Mizan R Khan is Deputy Director of the International Center for Climate Change and Development (ICCCAD) at the Independent University of Bangladesh and Program Director at LDC Universities Consortium on Climate Change (LUCCC).

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Will the G20 step up debt relief for the poorest countries? | Business and Economy

The G20 is set to discuss going beyond the initial debt relief efforts agreed to in April as the pandemic continues to ravage poor economies.

The Group of 20 major economies this weekend may have to consider expanding aid to the world’s poorest countries, three months after agreeing to provide temporary debt relief amid the coronavirus pandemic continues to ravage the nations.

G-20 central bankers and finance ministers will hold a virtual meeting on Saturday to discuss and coordinate phased efforts to spur a global economic recovery. Looking beyond debt relief efforts would be part of it.

The Covid-19 pandemic is now spreading faster in the Americas and Africa compared to the previous meeting in April, when the bulk of infections were in Asia and Europe. The rate of infections is rising in many countries, with the cost of debt outweighing health and social spending.

Unprecedented stimulus measures from the world’s largest central banks have helped most emerging markets regain access to international capital markets, but some smaller economies that typically do not benefit from large-scale borrowing will still need help.

“The focus on debt is important, but we shouldn’t focus on it to the exclusion of everything else,” said Anna Gelpern, professor of law at Georgetown University, at a conference July 9. “The goal must be essential funding. needs in response to a public health shock. How to get there is a second-rate question.

Since the April G-20 agreement that aims to waive around $ 12 billion in bilateral debt payments from countries particularly vulnerable to the pandemic, 41 of 73 eligible countries have asked for help. The Paris Club waived $ 1.3 billion in repayments and the International Monetary Fund made $ 100 billion in emergency funding available for low-income and emerging countries.

Middle income countries

However, charities, including Oxfam, have said that the aid given to the world’s poorest countries so far is “woefully insufficient”. Saturday’s talks could focus on extending the debt break beyond 2020 and adding middle-income countries, said Eric LeCompte of Jubilee USA Network, a non-profit group that advocates for the debt relief for small economies.

France’s main priorities for the meeting will be to extend the moratorium on the debt service of the poorest countries until 2021 and to encourage international negotiations for digital and minimum taxation, the finance minister said. Bruno Le Maire. Discussion of a new allocation of special drawing rights to the IMF will likely remain on the table, according to a finance ministry official.

A proposal to increase these reserve assets, which would increase the IMF’s lending power, was blocked by the United States at the lender’s meeting in April. However, the governor of China’s central bank on Thursday called on the IMF to use a new issuance of SDRs to help developing countries.

In a letter to G-20 finance ministers released on Friday, a group of economists including former US Treasury Secretary Larry Summers and Vera Songwe, executive secretary of the United Nations Economic Commission for Africa, urged the meeting to extend the debt moratorium and consider new SDR allocations. Summers is a Bloomberg News contributor.

“It will take more than a six-month suspension of debt service on existing bilateral debts to help the poorest countries finance the necessary fiscal and health response,” said Brad Setser, senior researcher at the Council on Foreign Relations and former economist in the US Treasury Department. “We also need more financial flows. “

Private creditors have so far backed away from efforts to stop payments on Eurobonds as countries feared triggering default clauses.

Another sticking point is China, which has been slow to join the debt suspension initiative. The participation of the world’s second largest economy is essential for the debt cancellation campaign to work, World Bank President David Malpass said last week.

“The persistent lack of clarity on which Chinese creditors will participate, coupled with the resistance of private sector creditors to voluntary participation suggest that the actual relief will be far less than originally expected,” Alicia Garcia Herrero, Chief Economist for Asia-Pacific at Natixis SA, says in a note.

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China under pressure to cancel debt of poor coronavirus-hit countries under G20 initiative: report

China, the world’s largest creditor, is under increasing pressure to cancel its massive debt to poor countries affected by the coronavirus under the Group of Debt Service Suspension Initiative (DSSI). 20, according to a press article. World Bank President David Malpass on Monday called on China to cancel its debt to poor countries affected by the coronavirus, accusing Beijing’s well-capitalized official lenders of not fully participating in the DSSI.

An additional factor in the current wave of debt is the rapid growth of new official lenders, especially several of China’s well-capitalized creditors, ”said Malpass, at an online event hosted by the Frankfurt School of Finance and Management. portfolios dramatically and do not participate fully in the debt rescheduling processes that have been developed to mitigate previous waves of debt, ”the Hong Kong-based South China Morning Post said.

G20 finance ministers agreed to a “time-limited suspension of debt service payments” to the world’s 77 poorest countries at the online spring meetings of the International Monetary Fund (IMF) and the World Bank on April 15 given the grim situation these countries are facing due to the coronavirus pandemic. As part of this DSSI, a payment estimated at US $ 12 billion to be made between May 1 and the end of 2020 has been rescheduled.

According to an article published by the Chinese state-owned company CGTN, more than 100 low- and middle-income countries will still have to pay a total of 130 billion USD in debt service in 2020. In addition, 43 countries have received about five billion USD from the DSSI to finance social, health and economic measures to respond to the pandemic.

China is the largest bilateral lender to most emerging economies, especially lending to hundreds of projects under its Belt and Road Initiative (BRI). Of the amount owed by poor countries participating in the G20 debt plan between May and December this year, 70%, or $ 7.17 billion, was for China. That amount is expected to reach $ 10.51 billion, or 74 percent of the total, next year if the DSSI is extended, the Post report said on Wednesday.

China has been criticized in particular by G7 countries for classifying large public and government-controlled financial institutions as commercial lenders and not as official bilateral creditors. Those critics include Malpass, who said the Development Bank of China (CDB) must participate as the official bilateral lender for the DSSI to be effective, according to the report.

China argued that since the CBD lends on commercial rather than concessional terms, the bank should be treated as a commercial lender. CBD loans to DSSI-eligible countries are highly concentrated in Angola and Pakistan. China said since the adoption of the G20 debt freeze deal in April, it had received more than 20 applications and reached agreements with more than 10 borrowers by the end of July, without specifying the recipients.

For its part, China has been pushing for the World Bank to be included in the DSSI, a move that has so far been pushed back by other World Bank / IMF members. In June of this year, Beijing hosted an online China-Africa COVID-19 Solidarity Summit where the debt situation was discussed, as 40 of the 77 developing countries are located in sub-Saharan Africa.

China’s debt to African countries is estimated to be $ 150 billion in 2018. Reports indicate that China holds about a third of Africa’s sovereign debt as China has extended its funding. to a number of African countries amid concerns over a debt trap and even loss of sovereignty, especially after Sri Lanka ceded its port of Hambantota to a Chinese state-owned company in 2017 for a 99-year lease in the form of a debt swap in the amount of $ 1.2 billion. The Post quoted Mark Bohlund, senior analyst at REDD Intelligence, as saying that there had been no movement on the DSSI extension and inclusion of CBD largely because China did not want to be intimidated on the scene. global.

Bohlund said China does not want to be forced to foot much of the bill for extending the DSSI without any concessions from G7 countries in other areas. In May this year, the New York Times reported that China was inundated with requests for debt relief from several countries, including Pakistan, Kyrgyzstan, Sri Lanka and a number of African countries, asking to restructure, delay repayments or cancel tens of billions of dollars in loans. coming this year.

China faces tough choices. If he restructures or cancels these loans, it could strain their financial system and infuriate the Chinese people, who are suffering from their own downturn. But if China demands a refund when many countries are already angry with Beijing for its handling of the pandemic, its quest for global influence could be threatened, ”he said.

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Rwanda secures over $ 16 million in debt relief from IMF

Rwanda is expected to receive debt service relief of $ 16.9 million from the International Monetary Fund (IMF) for an initial period of six months, the Fund said.

This is the second debt service relief granted to Rwanda by the IMF. This is part of the Fund’s efforts to suspend debt collection from a number of countries to help them cope with the impact of the Covid-19 pandemic.

By not servicing its debt for several months, Rwanda will have more capital to invest in affected sectors of the economy and improve its ability to respond to the pandemic.

The $ 16.9 million would have been paid in debt service to the IMF for six months, from October 14, 2020 to April 13, 2021.

Subject to the availability of resources, debt service relief could be granted for a total period of two years, until April 13, 2022, estimated at nearly $ 959 million.

The move aims to free up limited financial resources for essential emergency medical assistance and other relief efforts.

Samba Mbaye, the IMF’s resident representative in Rwanda, told the New Times that the organization was raising funds to further expand debt relief.

“The IMF will continue its fundraising efforts and provide additional debt service relief for a period of up to 24 months depending on the availability of resources,” he said.

Rwanda has also received $ 220.46 million from the International Monetary Fund under the Rapid Credit Facility (FCR) to support recovery amid the Covid-19 pandemic.

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G20 agrees on debt framework to help poor countries affected by COVID

PARIS / TOKYO: G20 finance ministers first agreed on a new common framework for public debt restructuring, anticipating that the coronavirus crisis will leave some poor countries in need of a deep relief.

The COVID-19 pandemic is straining the finances of some developing countries and G20 ministers said on Friday they recognize that more should be done to help them than a current temporary debt freeze, which will be extended until June 30, 2021.

Major creditors, including China, will need to follow common guidelines on how a debt deemed unsustainable can be reduced or rescheduled.

The new framework presented on Friday borrows heavily from the rules of the Paris Club, an informal grouping of governments of mostly wealthy countries that has so far been the only common forum for negotiating debt restructuring.

In the new framework, the creditor countries will negotiate with a debtor country, which will have to ask the same conditions of treatment of the creditors of the private sector.

G20 finance ministers said in a joint statement that the framework aims to “facilitate swift and orderly debt processing” for countries eligible for a debt payment freeze put in place in April, but failing to do so. included that private sector creditors on a voluntary basis.

“The fact that we, including non-Paris Club members, agree on such an issue is historic,” Japanese Finance Minister Taro Aso said, adding that private sector creditors should also stick to the new framework.

“Now all interested parties must ensure that the common framework is implemented. Debt transparency is extremely important, ”Aso told reporters after a G20 conference call.

The new framework also goes beyond a debt freeze by requiring the participation of all public creditors, after China was criticized by G20 partners for not including debt to its state-owned banks.

China has emerged as one of the major creditors of developing countries in recent years, often lending through institutions such as the Development Bank of China and China EXIM.

But China is wary of debt cancellations, and Beijing has defined the state-owned Development Bank of China as a private institution, resisting calls for full participation in debt relief.

The Paris Club, organized by the French finance ministry, and the G20 countries already agreed last month to extend this year’s debt freeze under which they deferred $ 5 billion in debt service for help the world’s poorest countries cope with the coronavirus crisis.

G20 leaders are expected to endorse the common framework at a virtual summit next week.

Disclaimer: This article was posted automatically from an agency feed without any text changes and has not been reviewed by an editor

Read all Latest news, latest news and Coronavirus news here

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G-20 agrees framework for further debt relief amid COVID-19

The Group of 20 nations, representing the world’s largest economies, announced on Friday that low-income countries hardest hit by the fallout from the coronavirus pandemic could potentially obtain an extension of their debt repayments beyond the mid-2021, and in the most serious cases, a debt write-off.Read also – Karnataka: 20% of beds in public hospitals will be reserved for children to fight third wave of COVID

The G-20 statement, released after a virtual meeting of finance ministers and central bank governors from the group, said countries had agreed on a “common framework” for debt restructuring ” timely and orderly “which aims to treat creditors equally and negotiate debt. case by case. Read also – Center urges people to follow Covid guidelines and avoid mass gatherings in containment areas during festivals | Key points

But he did not specify which creditors would agree to a possible debt cancellation. China, for example, has repeatedly opposed parts of the debt relief plans. The country, considered Africa’s biggest creditor, is reluctant to give up billions owed to it from its politically strategic projects across the developing world as its own economy slows. Read also – Jadavpur University will organize a free vaccination camp for students; Details to be notified soon

The meeting comes a month after the G-20 agreed to suspend $ 14 billion in debt repayment for another six months to support 73 of the world’s most needy countries in their fight against the pandemic.

Developing countries now have until June 2021 to spend on health care and emergency stimulus programs without worrying about exhausting debt repayments to foreign creditors. Although the pause on debt service payments was greeted as a reprieve, experts pointed to the constraints of a program that excludes private lenders like investment firms, banks and bondholders. Without private sector buy-in, economists say emergency funds from poor countries could simply end up in the pockets of other lenders, regardless of the G-20’s concessions.

The group’s new case-by-case approach to debt negotiations unveiled Friday, also endorsed by the Paris Club, a group of mostly Western sovereign lenders, demands a fair burden-sharing “among all official creditors,” suggesting that China and its disparate lending agencies will have to get on board He calls for private creditors to offer debt treatment at least as favorable as that offered by creditor countries.

Mohammed al-Jadaan, Saudi Arabia’s finance minister and chairman of the G-20 this year, hailed the framework as an unprecedented deal and a major breakthrough in the international debt agenda.

Kristalina Georgieva, Managing Director of the International Monetary Fund, echoed the praise, saying the deal would make the involvement of private creditors more likely and increase the sustainability of our action.

Nonetheless, she warned that the debt crisis was not over, adding that we needed additional support through debt relief and new financing. “

The group also announced on Friday that it would meet again next spring to see if the economic and financial situation requires “an extension of the debt suspension for another six months. A repayment schedule of 5 to 6 years can be expected. offered to eligible countries requesting it to individual creditors.

Before COVID-19 hit, much of the developing world, which was already in dire need of doctors and medical equipment, was spending huge portions of its income to service external debt. Now that the pandemic has closed borders, halted tourism, lowered oil prices and wiped out remittances, poverty is increasing and resources are dwindling.

International aid groups have been pushing for more debt relief and partial forgiveness rather than a simple suspension, arguing that poor countries should not cut spending much needed on stimulus packages and under health systems. pressure.

Ahead of Friday’s finance meeting, more than a thousand medical professionals around the world sent a letter to the G-20 urging debt cancellation for developing countries. “It is perverse that poor countries have to pay $ 3 billion a month in debt repayment to rich banks, investment funds or the World Bank, while their populations are sinking further into poverty and destitution, wrote Chema Vera, Acting Executive Director of Oxfam International.

(AP copy)

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The G20 fails to reduce the debt of poor countries

G20 updates

Support to the world’s poorest countries in the form of debt suspension of the G20 group of rich countries is well below what was expected at the start of the coronavirus crisis, with just $ 5.3 billion in bilateral debt repayments due to be suspended so far this year.

This is far less than the $ 11.5 billion or more expected from official creditors; furthermore, no country has demanded similar treatment from private creditors, despite strong encouragement from the G20 and debt activists.

The G20 released the figure after a meeting of its finance ministers and central bank governors on Saturday, to a scathing response.

David Malpass, president of the World Bank, criticized the group for its lack of debt relief and said more needed to be done.

World Bank data shows that the 73 countries eligible for the G20 Debt Service Suspension Initiative (DSSI) launched in May could delay payments worth $ 11.5 billion this year, and 41 countries have so far requested to do so, for a total of $ 8.8 billion.

This flies in the face of the G20 statement that 42 countries have asked to defer payments worth $ 5.3 billion. Of this amount, nearly $ 2 billion will be reported by China alone, according to a breakdown of the figures seen by the Financial Times.

The total does not include loans from the Development Bank of China, according to the breakdown document, which said that “China encourages CBD to participate in DSSI [as a commercial creditor] under comparable conditions ”.

Mr. Malpass said that “all official bilateral creditors, including domestic banks, should implement the DSSI in a transparent manner. For example, the full participation of the Development Bank of China as an official bilateral creditor is important for the initiative to work.

He said the G20 should do more to ensure transparency and consistent treatment, to “avoid the ongoing secret rescheduling in some countries, such as Angola and Laos, often with undisclosed deadlines and grace conditions.” .

He also urged the G20 to extend the DSSI until next year and move beyond the suspension of debt service and “open the door to consultations on the debt overhang itself and effective means. reduce the net present value of bilateral and commercial public debt for the poorest. countries.”

If so, it would almost certainly make bilateral debt relief conditional on similar treatment by private creditors, which many sovereign borrowers have been reluctant to seek for fear of damaging their creditworthiness and therefore their access to markets. international capital.

Emerging market governments have raised nearly $ 90 billion by selling bonds in global markets since April 1, according to the Institute of International Finance, often at lower interest rates than those available before the outbreak. coronavirus thanks to the trillions of dollars injected into capital markets by the US Federal Reserve and other advanced economies central banks.

Debt activists have reacted with dismay to the G20 statement and the World Bank’s response.

“I am surprised that the World Bank, as one of the stewards of global development, is not seized by a greater sense of urgency,” said Gayle Smith, president of One Campaign and former special assistant to the president Barack Obama.

She said the Bank was taking more debt repayments from poor countries than it was disbursing in emergency loans and should join bilateral creditors in freezing debt service. She also criticized the lack of transparency and confusion over the amounts of debt benefiting from the G20 initiative.

“If I was in my old seat I would be tempted to ask what’s going on in the name of God if we can’t even pin down the numbers,” she said. “As if we needed another reminder that the world doesn’t act globally, here’s another.”

A G20 spokesperson said more debt relief deals could still be reached, so the eventual total amount could be higher.

This article has been edited after publication to note that total debt relief may increase.

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G20 prepares limited extension of debt relief for poorest countries

Updates on the economic impact of the coronavirus

The G20 rich country group is preparing to extend its debt relief offer to the world’s poorest countries until next year, but faces growing criticism for its limited ambition in the face of a growing crisis in emerging economies.

G20 ministers will meet at this week’s annual meetings of the IMF and World Bank on Wednesday, when they are expected to announce a six-month extension of the group’s Debt Service Suspension Initiative (DSSI) under from which 73 eligible countries can apply to G20 governments and their political banks to defer debt repayments due this year and spread them over four years.

The initial initiative was announced as the pandemic took hold around the world this spring, to offer short-term relief to poor countries struggling to meet immediate health, social and economic costs.

But, if confirmed, the extension will be less than requested by recipient countries.

A meeting this month of the United Nations Economic Commission for Africa, the Institute of International Finance which represents private sector creditors and a group of African finance ministers called for the ISDB to be extended until the end of 2021.

The G20 has also been criticized for failing to take into account the views of debtor countries.

A statement released after the meeting said “all stakeholders, including debtor countries and the private sector, should have a seat at the table and their views should be taken into account.”

Stephanie Blankenburg, head of debt and development finance at the United Nations Conference on Trade and Development, said: “There is an agreement between the advanced and developing countries of the G20 to represent only the interests of creditors. . We are absolutely not talking about how the debtor countries could receive their proposals. ”

In particular, she criticized a separate G20 plan for over-indebted poor countries, which will consider cuts and write-downs on a case-by-case basis next year.

It makes the relief of the G20 countries conditional on debtor countries seeking the same treatment from private creditors, including commercial banks and bondholders.

Ms Blankenburg said: “This places a huge burden on eligible developing countries, which tend to be small and poor.”

David Malpass, president of the World Bank, also criticized the efforts of the G20.

Speaking on Tuesday, he said that “the G20 is a forum primarily for creditors and he has been reluctant to move forward with the broader theme [of debt relief]”.

“Bilateral creditors are looking to get as many repayments as possible,” he said. Mr Malpass has repeatedly criticized G20 members for not fully participating in the initiative.

According to the IMF, 44 countries have applied to participate in the DSSI, deferring about $ 5.3 billion in repayments this year, less than half of the potential savings of $ 11.5 billion estimated by the World Bank.

The amount carried forward represents about a tenth of the increase this year in the external financing needs of the 73 countries eligible for the DSSI, estimated by the IMF at around 54 billion dollars.

Of the 44 countries that have used the DSSI, only three have requested comparable treatment from private creditors and no agreement has yet been signed, according to the IMF.

Mr. Malpass also criticized China’s partial involvement in the DSSI. Some Chinese creditors rescheduled principal payments but continued to collect interest, with deferred debt still subject to interest “so this will increase the debt burden of poor countries rather than ease them,” he said. declared.

China has become the main lender to many poor countries around the world in recent years. World Bank data released this week shows that its share of debt owed by the 73 countries in the DSSI fell from 45% in 2013 to 63% at the end of last year, when the combined debts of the 73 countries amounted to $ 744 billion.

China has been criticized for treating its large strategic banks as commercial rather than public lenders, meaning they have a choice of whether or not to participate in DSSI. China says it is a full participant in the DSSI and has provided nearly half of the relief negotiated so far this year.

This article has been modified after publication to correctly reflect the magnitude of countries’ borrowing needs.

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Poorest countries to save $ 12 billion in debt relief in 2020 (World Bank)

NEW YORK (Reuters) – The world’s poorest countries could save more than $ 12 billion owed to sovereign and other creditors this year thanks to their participation in a debt relief program, with Angola alone saving some $ 3.4 billion, according to estimates released Friday in a new World Bank database.

Savings from the COVID-19 Debt Service Suspension Initiative (DSSI) will be short-term, as the initiative only provides for the suspension of debt payments until the end of the period. the year. It defers these payments to a later date but does not cancel them outright.

The second saver among DSSI-eligible countries would be Pakistan, with $ 2.4 billion, followed by Kenya with $ 802 million, the data shows. here.

In terms of savings relative to gross domestic product, Bhutan would reap the most benefits from the plan with 7.3% savings on GDP, followed by Angola at 3.7% and Djibouti at 2, 5%.

In addition to the estimated savings of each country, the database includes details on debt to multilaterals like the International Monetary Fund as well as official and unofficial bilateral debt disbursed and debt service owed per year.

IMF and World Bank officials have warned that the COVID-19 pandemic will hit developing and emerging markets particularly hard given high debt levels, sharp drops in the prices of oil and other commodities and inadequate health systems.

The DSSI is supported by the G-20, the World Bank, the IMF and the Paris Club of sovereign lenders. The database offers a new level of transparency on debts and creditors, including China, which has emerged as one of the largest creditors in Africa and elsewhere over the past two decades.

The Jubilee Debt campaign estimated that canceling debt payments from poor countries, including to private creditors, would free up more than $ 25 billion for countries this year, or $ 50 billion if extended until in 2021.

The United Nations, many African countries and civil society groups have called for debt relief to be extended for two years to allow countries to recover more fully from the economic shock of the pandemic.

Reporting by Rodrigo Campos and Andrea Shalal; edited by Jonathan Oatis

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IMF’s Georgieva Says Private Creditors and China Must Fully Participate in Debt Relief

FILE PHOTO: IMF Managing Director Kristalina Georgieva speaks at a Vatican-hosted conference on economic solidarity, Vatican City, February 5, 2020. REUTERS / Remo Casilli

WASHINGTON (Reuters) – International Monetary Fund Managing Director Kristalina Georgieva on Wednesday called for increased involvement of private creditors and China in debt relief for poor countries, saying this was the key to her success and a potential framework for debt restructuring.

Georgieva told a press conference that the participation of private creditors in a program to suspend debt service for poor countries was largely non-existent, with only three of the 44 countries on the program reaching private creditors.

An IMF spokesperson said the total had recently increased to 43 countries when the heavily indebted Mozambique joined the program. here which suspends payments on official bilateral debt until June 2021.

“What we have seen, unfortunately, is that the private sector has been reluctant, and countries themselves have been reluctant to ask the private sector (for debt relief) for fear that it may erode their future market access. . The access they got the hard way in previous years, ”Georgieva said.

She added that only some of China’s official lending entities participated.

“What we’re also hearing from China is that it recognizes that it is a relatively new creditor, but that it is a very large creditor and that it needs to mature domestically in terms of managing its own lenders, coordinating between them, “said Georgieva. .

Reporting by David Lawder; Editing by Christopher Cushing

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Borrowing costs after debt relief

The Covid-19 pandemic is straining the public finances of many developing countries (Djankov and Panizza 2020). In response, a series of proposals and calls to action have been launched by experts and policy makers (Bolton et al. 2020a, 2020b, Bulow et al. 2020; Horn et al. 2020; Landers et al. 2020). In a short time, the international community – under the leadership of the G20 – agreed to help poor countries by proposing a suspension of debt service due in the second half of 2020. As part of the Suspension of Service Initiative debt (DSSI), participating countries can ask their bilateral lenders to defer debt service repayments for three years without affecting the net present value (NPV) of public debt. The size of the liquidity provision under the DSSI is not negligible. For all eligible countries, it stands at $ 10.2 billion and represents around one-fifth of the budget deficit due to the Covid-19 shock. However, many eligible countries have so far been reluctant or refused to participate in DSSI. It may seem like a confusing answer to what at first glance is free money in times of great need. Yet these countries fear that participation in the DSSI may signal debt sustainability issues that could trigger sovereign ratings downgrades and higher sovereign borrowing costs.1

In a recent article (Lang et al. 2020), we provide a first assessment of the short-term impact of DSSI on sovereign bond spreads. In particular, we test whether the potential benefits of providing short-term liquidity outweigh the stigma effects that may be associated with participating in the debt relief initiative. Estimating the effect of debt relief on sovereign bond spreads is generally difficult, as debt relief initiatives are generally not attributed to chance. Comparing debt relief recipients to other countries is therefore not instructive. However, the case of the DSSI makes it possible to construct plausible counterfactuals. Unlike most debt restructurings, the DSSI was announced simultaneously for the 73 eligible countries and, therefore, was not tailored to the needs of each country. In addition, the eligibility criteria were based on pre-existing income thresholds rather than financing needs or the severity of the shock, which crucially influence borrowing costs.

Sovereign borrowing costs fell by around 300 basis points

We use this event to analyze its impact on the spreads of sovereign bonds of the 16 countries eligible for DSSI with access to the international market and daily data available. We have used the Synthetic Control Method (SCM) developed by Abadie and Gardeazabal (2003) and now increasingly used in similar contexts (see Marchesi and Masi 2020). For each country eligible for DSSI, we build a synthetic control (or “doppelganger”) combining countries from a pool of middle-income countries not eligible for DSSI.2

Figure 1 shows our main result. The comparison of the spreads of the sovereign bonds of the countries eligible for the DSSI with their synthetic controls shows that the sovereign spreads decreased considerably after the debt relief. Several days after the DSSI announcement, spreads in eligible countries were down about 300 basis points (bps) more than in comparable untreated doppelganger countries. This average effect differs from country to country, but it is negative for all borrowers eligible for debt relief. This result is robust to the different specifications of the model, including the generalized synthetic control method (Xu 2017). In addition, a set of placebo tests in space and time shows that the effect on spreads is due to the DSSI and cannot be explained by the (contemporary) demand of an IMF program.

Figure 1 Spreads of sovereign bonds in DSSI-eligible countries compared to their synthetic controls

Remarks: The figure represents the difference between the real spreads of sovereign bonds and those of the synthetic control (spread gap) for the countries eligible for the DSSI. The solid red line is the average of the country specific spreads. Solid gray lines refer to countries that joined the DSSI on September 17, 2020, while dotted gray lines refer to countries that have not officially applied to join the initiative (Ghana, Honduras, Kenya, Mongolia, Nigeria and Uzbekistan). The vertical lines indicate the announcement of the DSSI on April 15, 2020 (solid line) and the first participation in the DSSI on May 1, 2020 (dotted line). The dots indicate the participation of each country in the DSSI. See description in main text. Source: Bloomberg, Our World in Data and IMF World Economic Outlook.

The fall in spreads seems to be due to the provision of liquidity

To discriminate between two mechanisms that could drive the results, we test the heterogeneous effects of debt relief. We focus on two sources of heterogeneity – the size of DSSI relief and the share of private creditors in debt service – and estimate their effects in a difference-in-differences framework using the projection method. local. This analysis shows that the decline in bond spreads for DSSI-eligible countries is greater for countries that have a higher share of debt service due during the eligibility period (between May and December 2020, graph 2, part A). On the other hand, the fall in spreads does not depend on the size of private creditors (Chart 2, Panel B). As there is no increase in spreads, not even for countries that owe a large portion of repayments to private creditors, these results do not support the presence of a stigma effect. On the contrary, the results are consistent with a positive liquidity effect due to the postponement of debt service due in 2020.

Figure 2 Cash flow versus stigma

A) Size of DSSI relief

B) Share of private creditors

Remarks: The figures plot the impulse response functions of the differential effect of the DSSI announcement (t = 0) between eligible and non-eligible countries on sovereign bond spreads. Panels A and B divide the sample between eligible countries that have benefited from DSSI relief greater or less than 0.5% of GDP and those whose debt service due to private creditors is greater or less than 60% of the total debt service due under the DSSI (the two thresholds are median values). See description in main text. Data source: Bloomberg and IMF World Economic Outlook.

Discussion

The international community is currently discussing the possibility of extending the current initiative to suspend debt service in developing countries until 2021. Our results suggest that this simple moratorium on neutral NPV debt – involving no discount for creditors – can effectively help countries overcome the crisis.

Our findings also add to the larger literature on debt restructuring. They show that rapid and unconditional debt rescheduling to countries facing short-term liquidity shocks can be an effective instrument of financial support that can help avoid severe defaults (Trebesch and Zabel 2017). In addition, our results support the design and adoption of simple conditional government debt instruments with floating grace periods to help poor countries mitigate their exposure to negative shocks (Cohen et al. 2008).

Two final qualifications are important. First, our results could be generalized to other situations where countries face a short-term crisis. In the presence of severe negative shocks, only the deferral of debt service could help reduce borrowing costs. However, this does not mean that the suspension of debt service will be the optimal response to the Covid-19 crisis in the months to come. If the shock persists, the liquidity crisis could evolve into a solvency crisis, as a change in the long-term growth rate of the economy would affect debt sustainability. In such a scenario, a reduction in the debt stock might be necessary to reduce debt distress and restore debt sustainability. Second, our analysis focuses on NPV neutral debt relief provided by the public sector. How the markets would react if private creditors also joined the initiative (as requested by the G20 and major international financial institutions) remains an open question.

The references

Abadie A and J Gardeazabal (2003), “The Economic Costs of Conflict: A Case Study of the Basque Country”, American Economic Review 93 (1): 113-132.

Bolton P, L Buchheit, PO Gourinchas, M Gulati, CT Hsieh, U Panizza and B Weder di Mauro (2020a), “Born of Necessity: A Debt Stop for COVID-19”, CEPR Policy Insight n ° 103.

Bolton P, M Gulati and U Panizza (2020b), “Legal air coverage», VoxEU.org, October 13.

Bulow J, C Reinhart, K ​​Rogoff and C Trebesch (2020), “The debt pandemic», IMF Finance and Development, Fall.

Cohen, D, H Djoufelkit-Cottenet, P Jacquet and C Valadier (2008), “Lending to the Poorest Countries: A New Counter-Cyclical Debt Instrument”, Working Paper 269, OECD Development Center.

Djankov S and U Panizza (2020), “COVID-19 in Developing Economies: A New eBook», VoxEU.org, June 22.

Cor S, C Reinhart and C Trebesch (2020), “China’s foreign lending and the looming developing country debt crisis», VoxEU.org, May 4.

Landers C, N Lee and S Morris (2020), “Over $ 1 trillion in MDB firepower exists as COVID-19 ‘shattering glass’ moment approaches”, Center for Global Development.

Lang V, D Mihalyi and AF Presbitero (2020), “Debt relief, liquidity provision and sovereign bond spreads”.

Marchesi S and T Masi (2020), “Debt restructuring during COVID-19: private and official agreements», VoxEU.org, May 4.

Trebesch C and M Zabel (2017), “The output cost of hard and soft sovereign default”, European Economic Review 92: 416-432.

Xu Y (2017), “Generalized synthetic control method for causal inference with cross-sectional time series data”, Policy Analysis 25: 57-76.

End Notes

1 See reports from international institutions (IMF 2020, World Bank 2020), Think Tanks (ODI 2020) and press articles in The Economist and Reuters, among others. More details on DSSI can be found here and on the World Bank website.

2 Since the dynamics of sovereign spreads depend on fiscal and economic performance, we take the growth of real GDP, the current account, the fiscal balance and the public debt (all in shares of GDP) as macroeconomic variables to construct the synthetic control. . Additionally, to compare countries with similar bond spread dynamics before DSSI, we match the spread levels to specific dates. Finally, to take into account the differences in the intensity of the Covid-19 crisis, we use the number of cases per inhabitant. See Lang et al. (2020) for more details.

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Global creditors agree to debt relief for poor countries affected by pandemic


Frenchman Bruno Le Maire.

Eric Peirmont | AFP | Getty Images

Major international creditors will relieve the world’s poorest countries from paying off their debt this year to help them cope with the coronavirus pandemic that triggered the world’s most brutal downturn since the 1930s, announced Tuesday France.

Finance officials from the United States, China and other major Group of 20 economies are expected to finalize the deal when they meet online on Wednesday, French Finance Minister Bruno Le Maire told reporters.

He said some 76 countries, including 40 in sub-Saharan Africa, would be eligible for debt payments worth a combined $ 20 billion suspended by public and private creditors, with the remaining $ 12 billion in payments owed to institutions. multilateral agreements still to be settled.

“We have obtained a moratorium on the debt at the level of bilateral creditors and private creditors for a total of 20 billion dollars,” Le Maire told reporters. He spoke just before the finance ministers and central bank governors of the Group of Seven (G-7) met by videoconference on Tuesday and gave their support for the temporary debt relief of the world’s largest countries. poor, provided it is supported by the G-20 and the Parisian Club.

In a joint statement, they said they were ready to grant “a time-limited suspension of debt service payments due on official bilateral claims for all countries eligible for concessional financing from the World Bank”. they were joined by China and other countries in the Top 20 Group. savings, and as agreed with the Paris Club Creditors Group.

Sources familiar with the process had told Reuters this week that they expected the G-20 to approve a suspension of debt payments at least until the end of the year, despite some resistance from the China, which has overtaken the World Bank as the main lender to development countries, especially in Africa.

IMF chief economist Gita Gopinath told Reuters that the deal offered “extremely welcome” relief to the poorest countries, freeing up resources that could be used to improve health systems at a time when the world’s poorest countries. resources are strained by falling commodity prices and massive capital outflows.

World Bank President David Malpass in a tweet thanked US Treasury Secretary Steven Mnuchin for hosting the G-7 meeting and supporting his joint call with International Monetary Fund Managing Director Kristalina Georgieva for the status temporary quo of debt.

The World Bank and the IMF have started providing emergency aid to countries struggling to suppress the coronavirus and mitigate its economic impact. They first launched their call for debt relief on March 25, but it was not officially endorsed by the G-20 countries.

The IMF, in its World Economic Outlook 2020, said the pandemic will cause the global economy to contract 3.0%, but warned the impact could be much worse.

Gopinath said the pandemic could be much more severe in developing economies that had yet to see the types of lockdowns already implemented in China, the United States and Europe, adding a “serious downside risk To IMF forecasts.

The forecast provided a grim backdrop for the spring meetings of the IMF and World Bank, which normally draw 10,000 people to Washington but are being held by video conference this week due to the pandemic.

Debt cancellation

In their statement, G-7 officials also called for more contributions to the IMF’s Containment and Disaster Relief Trust (CCRT) and its Poverty Reduction and Growth Trust Fund, that support the poorest countries. They said the debt relief effort should include private creditors on a voluntary basis, as well as efforts to improve debt transparency.

Western countries have for years demanded more transparency on Chinese government, bank and corporate loans, but Beijing has been reluctant to open its books.

A French finance ministry official said private creditors have voluntarily agreed to roll over or refinance $ 8 billion in the debt of the poorest countries, in addition to the $ 12 billion in debt repayment to suspend by countries.

An additional $ 12 billion is owed to multilateral lenders, primarily the World Bank, Le Maire said, urging these lenders to join the debt relief initiative. The IMF on Monday announced $ 215 million in initial debt relief grants to 25 countries from the CCRT. The trust has around $ 500 million, but the IMF wants to increase it to $ 1.4 billion.

Nonprofit groups, Pope Francis and others are increasingly calling for action on the temporary suspension of debt payments by canceling the debts of the poorest countries.

The AFL-CIO trade union federation and nearly 80 other faith groups on Tuesday urged the US government, the IMF and G-20 countries to cancel debt payments from developing countries and mobilize additional resources to support all countries affected by the rapidly spreading pandemic.

French President Emmanuel Macron said in a televised address on Monday that African countries should be helped by “massively canceling their debt”.

He gave no details, but Le Maire said outright debt cancellation should take place on a case-by-case basis and in coordination with multilateral lenders at the end of the year, depending on the situation. economic development of countries as well as the evolution of raw materials. markets and capital flows.


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G20 Extends Debt Relief Plan As Warnings Are Not Enough

The richest countries in the world have agreed to renew a debt relief initiative for the poorest until at least the first half of 2021, short of a World Bank call for a full year extension then that the coronavirus pandemic is worsening poverty.

The G20, in a statement released by Saudi Arabia, which holds the bloc’s presidency, said it could order another six-month extension next year. The statement said G20 members were disappointed at the lack of progress in extending the debt relief plan to involve private creditors.

In an online press conference, World Bank President David Malpass called for more measures for meaningful debt reduction. “There is an urgent need to make rapid progress on a framework as the risk of disorderly defaults increases,” he said.

The consequences for some countries are disastrous. African countries face a $ 345 billion funding gap through 2023, the IMF said last week, with some forced to choose between servicing debt or spending on health and social programs.

Private credit

The group of industrialized economies unveiled the Debt Service Suspension Initiative in April to provide billions of dollars in relief to 73 eligible countries. So far, more than 40 people have requested the aid, which was to last until the end of December, most of them in sub-Saharan Africa. The World Bank estimates that countries could save US $ 12 billion owed to government creditors this year.

Eligible countries can also ask private creditors to freeze repayments, but only a few have done so – a major failure according to advocacy groups. This point was also addressed by the Managing Director of the International Monetary Fund, Kristalina Georgieva, on Wednesday.

The private sector has “unfortunately” shied away from debt relief, she told a virtual press conference. Meanwhile, “countries themselves have been reluctant to ask the private sector for fear it might erode their future market access, access which they have obtained the hard way in previous years,” she said.

Role of China

Malpass had called on the G20 to extend debt relief until the end of next year, and said hedge funds and China should participate more. China owes nearly 60% of the bilateral debt that the world’s poorest countries are expected to repay this year.

He won the backing of German Finance Minister Olaf Scholz, who on Wednesday called for an agreement that included “many other countries not currently participating in the debt suspension.” China must be “part of the solution,” he said.

Advocacy groups like the European Network on Debt and Development say government support alone is insufficient. In a recent report, he likened the initiative to “emptying the Titanic with a bucket” and argued that it was only pushing the risks of a debt crisis “further down the road”.

Technology Tax

Lack of participation from private and multilateral lenders limited the impact of the program, the network said, noting that only 24% of debt payments owed by recipient countries between May and December 2020 were likely to be suspended.

Extending it to the first half of 2021 would cover 44% of debt payments by countries that have applied to participate, according to the report.

The G20 was also due to discuss digital taxation, but said the pandemic had affected work to that end. Disagreements between the European Union and President Donald Trump’s administration have also hampered years-long discussions over new rules. The Organization for Economic Co-operation and Development now aims to conclude the process by mid-2021, increasing the risk of a transatlantic trade dispute and a proliferation of contentious domestic levies on global tech giants.

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Why poor countries reject debt relief

Not all low-income countries are impressed by the G20 pandemic debt initiative. Many believe they can do better by fundraising in the markets.

Amid fears that the pandemic could wreak havoc in poorer countries, the G20 in April launched its Debt Service Suspension Initiative (DSSI) offering a temporary suspension of official government-to-government debt repayments to 73 low-income countries. The initiative was then extended for six months in October, ensuring that it will continue until the end of June 2021.

But so far, around 40% of eligible countries have not applied for DSSI, raising questions about the effectiveness of these programs and whether the downside of reputation for participating outweighs on the limited gains that result from simply deferring payments rather than completely forgetting the debt. .

With interest rates at record highs, now is the time for African and other emerging countries to borrow and invest more than less

For sovereigns who borrow commercially, the demand for DSSI comes with fear of losing market access. Banks and the private sector have so far resisted membership requests, and even if they did, deferral of payments would likely constitute a technical default with all the stigma that this entails for borrowers.

Aid charities have been vocal in their calls for more debt relief at all levels, but in the investment community some argue the opposite argument that with interest rates at rock bottom lines. highs, now is the time for African countries and other emerging countries to borrow and invest. more rather than less.

Emerging markets specialist Renaissance Capital said in a recent report that due to falling bond yields, emerging markets could add 60% of GDP to existing debt without increasing service costs if interest rates fall. 150 basis points only.

While accepting that currency risk is an issue if borrowing is in foreign currencies, the Renaissance Capital report argued, “We believe that an exciting opportunity (and of course, a risk) arises. Governments in FM [frontier markets] could be able to borrow at 4-6% in the 2020s, which (essentially) if well invested, could stimulate real growth by providing critical infrastructure to enable industrialization. “

Of course, the end result crucially depends on this last point – how much money will be invested. But it’s worth noting that in the IMF’s 2020 growth forecast, among the small group of countries (around 25) that will experience positive growth, many of the same names are on the DSSI list. This does not mean that they are not poor, but it does mean that they have upside potential which can be best achieved by promoting capital inflows rather than suspending debt repayments.

Brian Caplen is the editor of The Banker. Follow him on twitter @BrianCaplen

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Poorest countries face tough choice over G20 debt relief plan

LONDON (Reuters) – The world’s poorest countries may soon be faced with a tough decision – to double G20 debt relief with warning they must default on private creditors, or quit the program to try to keep the financial markets on the side.

FILE PHOTO: A man stands next to a chalkboard with the logo of the G20 Finance Ministers Meeting in Buenos Aires, Argentina, March 19, 2018. REUTERS / Marcos Brindicci / File Photo

Rich countries on Friday supported an extension of the G20 Debt Service Suspension Initiative (DSSI), approved in April to help developing countries survive the coronavirus pandemic and which has seen 43 of 73 countries potential eligible here defer $ 5 billion in “public sector” debt repayment.

The European Network on Debt and Development (Eurodad), made up of 50 non-governmental organizations, estimates that extending the temporary six-month freeze would provide additional relief of $ 6.4 billion, rising to $ 11.4 billion. dollars if the extension runs until the end of 2021.

That would represent just over a quarter of next year’s combined debt payments for countries already enrolled in DSSI, and would represent up to 4.3% of GDP for countries like Angola, according to Fitch Ratings.

But an important chain can be attached.

Amid warnings that the pandemic could push 100 million people into extreme poverty, World Bank President David Malpass is also calling on banks and investment funds that have loaned DSSI countries to get involved. .

“So far, the relief is too shallow to light the end of the debt tunnel,” Malpass told the United Nations on Tuesday. “Commercial creditors are not participating in the moratorium, draining funding provided by multilateral institutions. “

Kevin Daly of Aberdeen Standard Investments, who is part of a joint private sector response to DSSI’s proposals, believes that opinions such as Malpass’s Average Private Sector Involvement (PSI) – write downs for equity holders bonds – could become “mandatory” as part of the expected extension.

Such a change could be signaled at IMF meetings next month.

Eurodad calculates that DSSI countries must pay private sector bondholders $ 6.4 billion and other private lenders $ 7.1 billion next year, a combined $ 13.5 billion that is more than what the signatory countries owe the governments of the G20.

“We have already heard that there is a strong possibility that this (PSI) could be the case,” Angolan Secretary of State for Budget and Investment Aia-Eza Silva said, adding that the he main focus of Angola remains bilateral creditors like China.

(Graphic: How much debt relief will DSSI bring to countries -)

LOSS OF ACCESS

Charity groups estimate that 121 low- and middle-income governments spent more last year on external debt servicing than on public health systems which are now at the breaking point, which is a strong moral argument for relief.

However, there are other complicating factors.

Rating agencies S&P Global, Moody’s and Fitch have warned that if countries suspend or postpone debt payments to the private sector, it would almost certainly be classified as restructuring and default by their criteria.

Restructuring is complex and generally takes much longer than the affected countries currently do. It would also mean that the poorest countries that have struggled to access international markets over the past decade would lose it just as they face enormous challenges.

Moody’s estimates that they face a combined funding gap of $ 40 billion this year. The Institute of International Finance estimates that the external debt of the countries of the DSSI has more than doubled since 2010 to reach more than 750 billion dollars and now represents on average nearly 50% of the GDP, a high level for their stage of development. .

A total of 23 DSSI-eligible countries have sold Eurobonds, but only a few, such as Honduras and Mongolia, have done so since the program launched in April. Pakistan wants to sell $ 1.5 billion worth of bonds, but creditors would back off if PSI were to emerge.

“It is extremely unlikely that a country that is part of it (DSSI) this year will jeopardize its market access,” said Kevin Daly of Aberdeen. “I don’t think any of them would want to participate.”

(Chart: DSSI debt country bonds -)

Poverty action groups say the private sector is exaggerating the issue, highlighting the speed at which Argentina sold a 100-year bond after one of its restructurings.

A potential ‘carrot’ for countries and their creditors could be Brady bond-type debt swaps, where investors write off certain loans in exchange for new, credit-enhanced bonds with full or partial guarantees from the G20 or multilateral development banks. .

JP Morgan’s bond index arm stirred up discussions about such a plan when it announced this month that enhanced credit debt would be eligible for its emerging markets benchmark from mid-October, just after the main IMF and G20 DSSI meetings.

Eurodad’s Iolanda Fresnillo said debt swaps could be a solution for many countries, although the hardest hit countries would need more extreme measures.

“It’s not just a liquidity crisis, we need to tackle debt sustainability and opt for debt cancellation,” Fresnillo said.

“By simply postponing payments, you are not solving the problems these countries are facing.”

Additional reporting by Andrea Shalal in Washington and Karin Strohecker in London; Editing by Catherine Evans

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Somalia to benefit from debt relief under the enhanced HIPC Initiative

Somalia to benefit from debt relief under the enhanced HIPC Initiative

March 25, 2020

Washington DC
The International Monetary Fund (IMF) and the International Development Association of the World Bank have determined that Somalia has taken the necessary steps to begin receiving debt relief under the Enhanced Initiative for heavily indebted poor countries (HIPCs). Somalia is the 37e
countries to reach this stage, known as the HIPC decision point.

Debt relief will help Somalia bring lasting change for its people by allowing its debt to be irrevocably reduced from US $ 5.2 billion at the end of 2018 to US $ 557 million in value terms current net present (NPV) once it reaches the HIPC completion point in about three years. ‘ time. As Somalia continues on the path to stability and development after 30 years outside the international financial system, the immediate normalization of its relations with the international community will reopen access to additional financial resources essential to strengthen the economy, help improve social conditions, lift millions of people out of poverty and generate sustainable jobs for Somalis.

“I would like to congratulate the Somali government and people for their intense efforts over the past few years leading up to this momentous event,” said Kristalina Georgieva, Managing Director of the IMF. “The successful reform efforts have laid the foundation for inclusive economic growth and meeting the needs of the country’s most vulnerable people. Work must continue to support and expand the implementation of these reforms as Somalia enters a new chapter in its history. I am convinced that a more resilient and prosperous future awaits the Somali people. ”

“We welcome Somalia’s efforts to restore stability, build relationships with creditors and adopt a poverty reduction strategy,” said World Bank Group President David Malpass. “The resumption of regular funding for Somalia is an important milestone, and we look forward to further economic and social progress. ”

“The Somali government and people are very satisfied with the decision of the IMF and the World Bank Group which allows Somalia to fully re-engage with international financial institutions. This decision is an important step that presents many opportunities for Somalia as it relentlessly pursues its ongoing reform processes as well as its recovery and development agenda, ”said

Hassan Ali Khayre, Prime Minister, Federal Government of Somalia

. “The journey that led to this decision required hard work, dedication and partnership. The FGS expresses its gratitude to the IMF, the World Bank Group and their partners for their unwavering support and to the Somali people for their patience and resilience on this journey.

Somalia is committed to maintaining macroeconomic stability; implement a poverty reduction strategy; and put in place a set of reforms focused on fiscal stability, improving governance and debt management, strengthening social conditions and supporting inclusive growth in order to reach the HIPC completion point . The World Bank and the IMF will continue to work together to provide the technical assistance and policy guidance the authorities need to achieve these goals, including in the context of the IMF’s new three-year financial arrangement.

In addition, the World Bank is considering a

range of new IDA investments

with a focus on immediate relief for communities affected by flooding, the locust invasion as well as preparing for the rapid threat of COVID-19. The leaders of the World Bank Group and the International Monetary Fund expressed their thanks to their member countries from all regions and all income levels, especially Italy, Norway, Qatar and the United Kingdom, as well as the EU, whose interventions catalyzed the support and provided the financial resources needed to help Somalia reach the decision point.

Details of the debt relief transaction

· At the start of the HIPC process, Somalia’s public and state guaranteed external debt was estimated at US $ 5.2 billion in NPV terms. Applying traditional debt relief mechanisms reduces this debt to US $ 3.7 billion.

· Additional debt relief under the enhanced HIPC Initiative is estimated at US $ 2.1 billion in NPV terms. Of this amount, US $ 843 million and US $ 1,225 million are expected to be provided by official multilateral and bilateral creditors, respectively.

· Paris Club creditors are expected to make a decision on debt relief by the end of March 2020. The main Paris Club creditors are the United States, Russia, Italy and France. The IMF Executive Board approved interim debt relief on the debt service owed to the IMF during the period between the HIPC decision and completion points. At the HIPC Initiative completion point, Somalia’s current debt to the IMF will be paid with the proceeds of financial contributions received from over 100 IMF members, including many low-income countries.

· Debt relief under the MDRI of IDA and the African Development Bank would write off all outstanding debts at the completion point.

Together, Somalia’s external debt burden is expected to rise from around $ 5.2 billion (110.7% of GDP) in NPV at the end of 2018 to $ 557 million (9% of GDP) once the point of completion achieved.

IMF and World Bank Arrears Clearance Operations

Arrears owed

IDA have been authorized

on March 5, 2020 through bridging funding provided by the Norwegian government, repaid with the proceeds of a development policy grant.

· Arrears to the IMF were cleared on March 25 with the help of Italian government bridging finance, which the authorities repaid using priority access under the IMF’s new financial arrangement.

Arrears to the

African development bank

were cleared on March 5, 2020 with bridging funding provided by the UK government and a contribution from the EU. The UK bridging loan was repaid with the proceeds of a policy-based operating grant.

The HIPC Initiative

In 1996, the world Bank
and IMF
launched the HIPC Initiative to create a framework within which all creditors, including multilateral creditors, can provide debt relief to the world’s poorest and most indebted countries to ensure debt sustainability , and thus reduce the constraints on economic growth and poverty reduction imposed by the unsustainable debt service charges in these countries. To date, 37 HIPC countries, including Somalia, have reached their decision points, of which 36 have reached the completion point.

MDRI

Created in 2005, the objective of

Multilateral Debt Relief Initiative

(MDRI) is to further reduce the debt of eligible low-income countries and provide additional resources to help them achieve their development goals. Under the MDRI, three multilateral institutions – the World Bank’s IDA, the IMF and the African Development Fund – provide 100% relief on eligible debts to eligible countries when they reach maturity. HIPC Initiative completion point.

Related links:

https://www.imf.org/en/Pays/SOM

https://www.worldbank.org/en/country/somalia

https://www.worldbank.org/en/topic/debt-relief

http://www.imf.org/external/np/exr/facts/hipc.htm

http://www.imf.org/external/np/exr/facts/mdri.htm

https://www.worldbank.org/en/news/press-release/2020/02/27/somalia-to-reestablish-financial-relations-with-the-world-bank-group-after-thirty-years

https://www.worldbank.org/en/news/press-release/2020/02/13/imf-and-world-bank-consider-somalia-eligible-for-assistance-under-the-enhanced-heavily- Initiative-hipc-poor-indebted-countries

imf.org/en/News/Articles/2020/02/13/pr2048-imf-and-wb-consider-somalia-eligible-for-assistance-under-the-enhanced-hipc-initiative

https://www.worldbank.org/en/news/press-release/2020/03/05/somalia-clears-arrears-to-world-bank-group


The Boards of Directors of IDA and IMF met on March 24, 2020; the decisions of the IMF Executive Board came into effect on March 25, 2020.

IMF Communications Department
MEDIA RELATIONS

PRESS OFFICER: Wafa Amr

Telephone: +1 202 623-7100E-mail: [email protected]

@ IMFSpeaker


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The Need for Debt-Climate Swaps by Shamshad Akhtar, et al

With developing countries facing a debt crisis that will only worsen as the COVID-19 pandemic continues, it is already inevitable that massive debt relief will be needed. The only question is whether it will be designed to deal with the even bigger climate crisis that is approaching.

ISLAMABAD – A global debt crisis is looming. Even before COVID-19 hit the world, the International Monetary Fund had Posted a warning on the public debt burden of developing countries, noting that half of all low-income countries were “at high risk or already in debt”. As the economic crisis deepens, these countries are experiencing sharp contractions in production at the same time as COVID-19 relief and recovery efforts demand a massive increase in spending.

According to the United Nations Conference on Trade and Development, the repayment of the external public debt of developing countries will cost $ 2.6 to $ 3.4 trillion in 2020 and 2021 alone.Therefore, market analysts now to suggest that nearly 40% of the sovereign external debt of emerging and frontier markets could be in default next year.

Worse, measures to deal with this debt crisis will clash head-on with global efforts to tackle climate change, inequality and other worsening global crises. So we need some creative thinking on how to advance multiple goals at the same time. We must both achieve a solid recovery from the pandemic-induced crisis and mobilize trillions of dollars for the transition to a more financially stable, socially inclusive and low carbon economy.

In April, G20 finance ministers approved a debt service suspension initiative to temporarily suspend the debt service of the world’s poorest countries as they deal with the COVID-19 crisis. Unfortunately, few debtor countries accepted this offer, fearing what it could give to markets and rating agencies. Moreover, private sector lenders have largely refused to offer significant forbearance on their part, thus undermining government efforts.

In the absence of new forms of liquidity support and major debt relief, the global economy cannot return to pre-pandemic growth levels without risking serious climate unrest and social unrest.Climatologists tell us that to meet the targets set in the Paris climate agreement, net global carbon dioxide emissions must fall by around 45% by 2030 and 100% by 2050. Given that the effects of the As climate change is already being felt around the world, countries urgently need to increase their investments in climate change adaptation and mitigation.

But that won’t be possible if governments get bogged down in a debt crisis. On the contrary, debt servicing demands will push countries to seek export income at all costs, including by reducing climate-resilient infrastructure and increasing their own use of fossil fuels and resource extraction. This course of events would further depress commodity prices, creating a catastrophic loop for producing countries.

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Faced with these concerns, the G20 has called on the IMF “to explore additional tools that could meet the needs of its members as the crisis evolves, building on relevant experiences from previous crises”. One of these tools that should be considered is a “climate debt swap” facility. In the 1980s and 1990s, developing countries and their creditors engaged in “debt-for-nature swapsWhere debt relief was linked to investments in reforestation, biodiversity and the protection of indigenous peoples.

This concept should now be broadened to include people-centered investments that tackle both climate change and inequality. Developing countries will need additional resources if they are to have any chance of leaving fossil fuels in the ground, investing enough in climate adaptation and creating job opportunities in the 21st century. One source of these resources is debt relief conditional on such investments.

Such a policy tool would not only put us on the path to recovery, but could also help prevent future debt sustainability issues that could arise as more stocks of fossil fuels and unresilient infrastructure become. “blocked assets. “In addition, the dramatic drop in the cost of renewable energy represents an opportunity for a surge in investment in zero-carbon energy infrastructure, which in itself would help alleviate energy poverty and unsustainable growth.

Some economists estimate that putting the global economy on the path necessary to limit global warming to 1.5 ° C would generate around 150 million jobs worldwide. At the same time, the United Nations Environment Program Production variance report showed that current production plans would push air emissions far beyond the limit of what is sustainable. To meet the goals of the Paris climate agreement, more than 80% of all proven reserves of fossil fuels will therefore need to remain in the ground.

Given the realities of the climate crisis, it would be foolish to include high-risk investments in fossil fuel extraction and infrastructure as part of any recovery strategy. Fortunately, with climate debt swaps, we could actively drive the transition to a low-carbon economy while stabilizing commodity prices and providing fiscal space for developing countries to invest in resilience and sustainability. sustainable development.

There is no doubt that many countries will need debt relief to respond effectively to the COVID-19 crisis and then to protect their climate economies in a socially inclusive manner. For many people in countries most vulnerable to climate change, finding the resources to make such investments is a matter of survival.

The G20 called on the IMF to develop new tools and strategies to present to its summits this fall. An ambitious global deal to swap debt for climate action and social equity should be high on the agenda.

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World Bank Seeks Ways To Reduce Debt In Poor Countries Instead Of Delaying Payments

File photo of David Malpass, President of the World Bank. | Photographer: Andrew Harrer | Bloomberg

Text size:

Washington: The World Bank is looking for ways to reduce the amount of debt of poor countries – rather than simply delaying payments – to attract more investors in the wake of the global pandemic and recession, President David Malpass said.
The coming months and the annual meetings of the World Bank and the International Monetary Fund in October present a good time horizon for action, Malpass said Wednesday in an interview on Bloomberg Television with Tom Keene. Malpass said he also sees an opportunity to expand relief under the Debt Service Suspension Initiative which began in May through 2021, an option he says will be supported. of the Group of Seven and the Group of 20 major economies.

“The next step is more difficult – a deal to actually do haircuts or cutbacks,” said Malpass. “But this has happened in the past; for example, in the 1980s, during the latin debt crisis, it happened to haircuts, but it took so long that countries were in very, very serious difficulties by the time it was ‘is produced. So one of the things we are trying to do is speed this up so that you can get a good result sooner. “

At a meeting in July, the G-20 said it would decide to extend the current suspension of debt payments closer to year-end, postponing assurances of further relief as the pandemic virus continues to burn around the world. Even with the April G-20 agreement to forgo bilateral debt payments from vulnerable countries, the cost of servicing bonds crowds out health and social spending.

China owes nearly 60% of the money the world’s poorest nations are expected to repay this year, according to World Bank data, and the nation has made numerous loans to developing countries on terms that are not transparent and at higher interest rates. than nations can afford, said Malpass. This underscores the importance of China’s participation in debt relief, he said.

Many Chinese credit agencies, including the Export-Import Bank of China, “participate in DSSI with the restructuring terms that other countries are using,” Malpass said. “Some of them aren’t, which creates the challenge we’re working on – by disclosing it.”

The Ex-Im Bank of China and the Development Bank of China finance a fifth of major infrastructure projects in Africa, according to consultancy firm Deloitte. In a separate interview later Wednesday, Malpass said that based on the characteristics of its outstanding debt, the BDC should participate in the global debt relief initiative as an official bilateral creditor rather than a private creditor, as she sought to do so.

Official creditors have committed through the G-20 agreement to participate in the debt suspension initiative; the private sector is only strongly encouraged to do so.


Read also : Covid cost tourism up to 5.5 cr jobs, Rs 1.58 cr lakh income – government tells House panel


Advantageous creditors

In many developing countries, loans are balanced in favor of creditors rather than debtors in terms of legal structure, creating moral hazard that increasingly encourages lending as creditors have an advantage in restructuring scenarios, said Malpass.

“This makes it difficult to come up with debt resolutions that allow light at the end of the tunnel for developing countries,” he said.

Malpass has repeatedly called on the private sector to become more involved in debt relief alongside official creditors and said language regarding the need for comparable treatment could be strengthened. He cautioned that official bilateral aid should not be conditioned on the level of private sector involvement.

Malpass said the World Bank and IMF are working on assessing the debt sustainability of developing countries and will discuss it at annual meetings in October. He said the World Bank wants to prevent a significant portion of its aid from being used by countries at risk of debt problems to repay past loans.

“We want good results for developing countries and especially for the poorest,” he said. – Bloomberg


Read also : Saudis set to join landmark Israel-UAE peace deal, Trump says


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Why the news media is in crisis and how to fix it

India is all the more in need of free, fair, uninhibited and questioning journalism as it is facing multiple crises.

But the news media are in a crisis of their own. There have been brutal layoffs and pay cuts. The best of journalism is shrinking, giving in to crass spectacle in prime time.

ThePrint employs the best young reporters, columnists and editors. Supporting journalism of this quality requires smart, thoughtful people like you to pay the price. Whether you live in India or abroad, you can do it here.

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Has the architecture of international debt failed the COVID-19 pandemic test?

By Yuefen Li, United Nations Independent Expert on Debt and Human Rights

For the first time in history, the world economy is facing a severe synchronized economic recession, affecting both developed and developing economies on all continents. COVID-19 and the resulting lockdowns and social distancing measures to contain the spread of the virus have led to a sharp economic downturn, accompanied by unanticipated economic and social costs due to the widespread collapse of nearly all income generation channels for many governments, including falling commodity prices, drastic cuts in foreign direct investment and trade, sudden stops in tourism, free drops in remittances and collapsing tax systems. The World Bank has estimated that COVID-19 will push 71 million people into extreme poverty by 2020, measured at the international poverty line of $ 1.90 per day.1Daniel Gerszon Mahler, “Updated Estimates of the Impact of COVID-19 on Global Poverty,” World Bank Blogs, June 8, 2020.

The current cumulative crises exacerbated by the COVID-19 pandemic have put the debt problems of developing countries in the spotlight. Many developing countries have entered the pandemic with unprecedented levels of public and private debt.2UNCTAD, “The shock of Covid-19 in developing countries”, March 2020. More than 40% of low-income countries were already over-indebted or at high risk of debt distress before the pandemic.3IMF, “The Changing Public Debt Vulnerabilities in Low-Income Economies,” February 2020. The economic contraction, the need for a pandemic response and the unsustainability of debt have fed each other, creating a dark vicious cycle that spirals down to the bottomless hole. The tight fiscal space for the pandemic response exacerbated the economic and social impacts of the pandemic, which in turn resulted in an increased need for borrowing, increased debt, and a debt service burden.

The changing debt landscape of developing countries has increased the debt service burden. Many developing countries, including some without an investment grade rating, have turned to riskier debt, including debt on commercial or near-commercial terms, thereby increasing their interest-to-revenue ratios on their external debt.4World Bank, “Debt Service Suspension and COVID-19,” Backgrounder, May 11, 2020. Among low-income countries, more than half of public debt is on non-concessional terms.5M. Ayhan Kose et al., “Caught by a cresting debt wave: past debt crises can teach developing economies to cope with COVID-19 financing shocks”, Finance and Development, Vol. 57, n ° 2, June 2020. Recent analysis indicates that in 2019, 64 low-income governments spent more on paying external debt than on health care.6Jubilee Debt Campaign, “Sixty-four countries spend more on debt payments than on health,” April 12, 2020. With their weaker health and social protection systems, a heavy debt burden, and deteriorating economic buffers, developing countries, especially those that are poor and over-indebted, have little room to provide support. response to the pandemic and need massive liquidity and funding. support to deal with the immediate fallout from the pandemic and its repercussions on economic and human rights. Unlike developed countries, they cannot put in place huge fiscal and monetary stimulus packages.

According to the International Monetary Fund (IMF), global government support stood at around $ 9 trillion in May 2020,7Bryn Battersby, W. Raphael Lam and Elif Ture, “Tracking the $ 9 trillion global fiscal support to fight COVID-19,” IMF Blog, May 20, 2020. most of them from advanced countries, which have a wide range of instruments. It is concerning that while advanced economies have used 8.6% of their gross domestic product (GDP) to respond to the pandemic, emerging and low-income economies have used 2.8% and 1.4% respectively of their GDP for expenses and taxes related to the pandemic. reductions.8Martin Mühleisen, Vladimir Klyuev and Sarah Sanya, “Courage Under Fire: Policy Responses from Emerging Markets and Developing Economies to the COVID-19 Pandemic,” IMF Blog, June 3, 2020. Some developing governments face difficult choices between saving lives or paying off debts.

Whether effective and timely measures can be deployed to alleviate the debt problems of developing countries and enable them to put in place appropriate responses to the pandemic is an important test for the international debt architecture. It is interesting to note that while the composition of the debt and the actors have changed considerably in recent years, the tools for preventing and resolving debt crises have remained more or less the same since the 1980s, with the exception of a certain tightening of bond contracts. This mismatch has made the policy proposals created in response to the COVID-19 crisis appear, to some extent, to lack both power and sophistication.

Three counterfactual scenarios could have helped developing countries avoid sovereign and private defaults and focus limited financial resources on combating the pandemic: the first is to have a comprehensive debt moratorium for as long as the pandemic lasts; the second is to provide massive amounts of liquidity to countries facing debt problems and hard hit by the pandemic in an “all it takes” way; and the third is to quickly benefit from large and meaningful debt relief, including debt restructuring and cancellation, which would be particularly useful for countries already facing solvency problems, as their debt is unsustainable and their financial capacity insufficient to pay this debt, even if transition money is provided.

But the architecture of international debt has gaps, constraints and constraints. So, we had too little of all three: a limited debt status quo, insufficient liquidity provision, and little debt relief. The criticism is that the answer is far from sufficient. As a result, we could face a lot of debt restructurings in the years to come.

For the debt status quo: The International Monetary Fund (IMF) and the Group of 20 (G20) have announced the freezing of the debt of poor countries in April 2020. They are welcome. However, the coverage in duration, country and debt instruments of the G20 is far too restrictive. One problem that seems to escape the G20’s radar is that some low-income debtors have access to international capital markets and fear possible rating downgrades. Therefore, a number of eligible countries have not requested the Debt Service Suspension Initiative (DSSI). The landscape has changed, but policymakers still use old formulas, such as GDP per capita, to decide on eligibility for debt relief. Private sector participation is a problem, as so far they have not responded to the invitation to join DSSI voluntarily. State-subordinated debt instruments that allow governments to suspend their debt when necessary are still not common.

For the provision of liquidity: IMF emergency facilities are welcome and adopted by many countries due to their severe shortage of liquidity. However, this is not enough. The IMF has a total of $ 1 trillion in these funds. Developed countries have had over $ 9 trillion for stimulus packages. To increase the provision of liquidity, a new issuance of Special Drawing Rights (SDRs) and the voluntary reallocation of existing and unused SDRs from developed countries to countries in need were proposed. However, the IMF board could not reach an agreement, reflecting the need to reform the IMF quota system. The current situation is that the countries that need SDRs the most have the least, and the countries that need the dollars the most do not have access to the US Federal Reserve’s swap line. Thus, proposals are made to develop regional exchanges and specialized facilities, which take time to reach significant size.

For debt relief and restructuring: After decades of debate, there is no debt restructuring or insolvency regime for sovereign states, although there are such systems for businesses. The document recently released by the IMF 9IMF, “The International Architecture for Sovereign Debt Resolution Involving Private Sector Creditors – Recent Developments, Challenges and Options for Reform”, October 2020 recognizes this gap in the current debt architecture. It is an encouraging step forward. People would come back to the issue with each crisis, demonstrating the desire for a framework that would allow for faster and more equitable debt restructuring. But in the past, the IFIs (international financial institutions) have insisted that the current system is efficient and sufficient. Debt relief and restructuring can be a long and expensive process. Patchwork and ad hoc sovereign debt restructuring agreements still prevail. Debt relief instruments such as debt buybacks and different types of debt swaps should always be handled with care to avoid legal complications and credit downgrades. However, if the country is insolvent, restructuring and debt cancellation would still be necessary.

After a major economic crisis, the global financial architecture has always undergone significant changes. I think this pandemic will be no exception. The gaps and imperfections in the international debt architecture make it difficult for the system to cope with a crisis of such depth and magnitude, including the lack of a rights-based approach to debt. man in the prevention and resolution of debt crises.

The references

1Daniel Gerszon Mahler, “Updated Estimates of the Impact of COVID-19 on Global Poverty,” World Bank Blogs, June 8, 2020.

2UNCTAD, “The shock of Covid-19 in developing countries”, March 2020.

3 IMF, “The Changing Public Debt Vulnerabilities in Low-Income Economies,” February 2020.

4World Bank, “Debt Service Suspension and COVID-19,” Backgrounder, May 11, 2020.

5M. Ayhan Kose et al., “Caught in a Debt Wave: Past Debt Crises Can Teach Developing Economies to Cope with COVID-19 Financing Shocks”, Finance and Development, flight. 57, n ° 2, June 2020.

6Jubilee Debt Campaign, “Sixty-four countries spend more on debt payments than on health,” April 12, 2020.

7Bryn Battersby, W. Raphael Lam and Elif Ture, “Tracking the $ 9 trillion global fiscal support to fight COVID-19,” IMF Blog, May 20, 2020.

8Martin Mühleisen, Vladimir Klyuev and Sarah Sanya, “Courage Under Fire: Policy Responses from Emerging Markets and Developing Economies to the COVID-19 Pandemic,” IMF Blog, June 3, 2020.

9IMF, “The International Architecture for Sovereign Debt Resolution Involving Private Sector Creditors – Recent Developments, Challenges and Options for Reform”, October 2020

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Africa Needs More Than G20 Offers To Address Looming Debt Crisis | Business and Economy News

African countries face yet another debt crisis and will need more long-term aid than the latest G20 debt plan offers them to avoid problems and maintain much-needed investments, policymakers say, analysts and investors.

About 40 percent of countries in sub-Saharan Africa were or were at risk of being over-indebted before even this year, while Zambia last Friday became the continent’s first default in the era of the pandemic.

The United States, China and other G20 countries have offered the world’s poorest countries – many of them in Africa – relief until at least mid-2021 and have drafted rescheduling rules for public debt to help ward off the risk of default in the aftermath of the coronavirus crisis.

But those plans to provide short-term breathing space might not go far enough.

“In 2021, a strong liquidity and structural response, stimulus and reset toolbox must be developed in partnership between emerging markets, the private sector and the G20,” warned Vera Songwe, Executive Secretary of the Economic Commission. United Nations for Africa.

Songwe is pushing for measures to release $ 500 billion to avoid leaving lasting scars due to prolonged funding gaps in poorer economies.

The debt ratios of sub-Saharan African countries had already risen sharply before COVID-19, just over a decade after the International Monetary Fund and the World Bank launched the Heavily Indebted Poor Countries Initiative ( HIPC) which reduced the debt burden by around 30 people. -continent income countries.

Fast forward to the year of the pandemic and sub-Saharan Africa is on track for a record 3% economic contraction this year, while debt-to-GDP ratios have doubled in the past decade to reach 57 %, found the IMF.

“We are definitely already in a debt crisis, there is no doubt about it,” said Bryan Carter, head of global emerging markets debt at HSBC, referring to poor countries around the world.

“I am worried about 2021. I am worried about an agreement in which many countries which will again have to finance themselves in a slow economic environment or even in recession where a vaccine is not yet available globally. For many countries, this is one year too long to fund.

Cancellations, suspensions, lower borrowing costs

Some countries will need help with their outstanding debt, not just payments.

Politicians such as the Prime Minister of Ethiopia and the Minister of Finance of Ghana, as well as campaign groups have pushed for outright debt cancellation, in addition to widespread calls for a longer suspension of service and repayment for the poorest countries of the continent.

Traders sit outside their store as Ghana lifts partial lockdown amid spread of coronavirus in Accra [File: Francis Kokoroko/Reuters]

Others, such as the ECA and some private investors, have also suggested that the strength of development banks could be harnessed through loans and guarantees to lower borrowing costs for countries most under pressure.

“There are certainly countries, like Zambia and Angola or Ghana, which are in pretty fragile places right now,” said Roberto Sifon-Arevalo, chief executive of the sovereign group of S&P Global Ratings, adding that the proposed plans did not solve the structural problems. “You need something much deeper, deeper, and holistic than this particular approach. “

African countries represent half of the 73 countries eligible for the G20 Debt Service Suspension Initiative (DSSI).

Much has changed since the HIPC Initiative, when money was mainly owed to rich countries and multilateral institutions. Now, a plethora of creditors complicates aid.

China plays a key role: its government, banks and corporations lent Africa some $ 143 billion from 2000 to 2017, according to Johns Hopkins University.

“About 10 African countries have a debt problem with China,” said Eric Olander, co-founder of The China-Africa Project, adding that Chinese loans were concentrated in a small number of countries. “Djibouti, Ethiopia, Kenya, Angola, Zambia – they all have very serious debt problems. “

A third of the $ 30.5 billion in public debt service payments owed in 2021 by SSD-eligible sub-Saharan African countries is owed to official Chinese creditors, while an additional 10% is tied to the Development Bank from China, calculated the Institute of International Finance.

China’s accession to the G20 framework has been widely praised, although many have criticized the lack of transparency of its loans.

“If you look at China, the loans are mostly shrouded in secrecy,” said Nalucha Nganga Ziba, Zambia’s national director for the anti-poverty charity ActionAid.

A woman walks next to a fashion store in the Piassa district of Addis Ababa, Ethiopia [File: Tiksa Negeri/Reuters]

Writing ahead of the G20 leaders’ meeting, IMF Director Kristalina Georgieva said the G20 framework, if “fully implemented,” could allow the poorest countries to demand permanent relief from their debt. debt. She gave no details. Some G20 members, such as China and Turkey, remain skeptical about effective debt cancellations.

Meanwhile, moving payments under the G20 deal from the short to medium term might just push the issue forward.

For example, Scope Ratings calculates that Angola participating in the DSSI could increase its debt service requirements from 2022 to 2024 by more than 1% of GDP per year.

An increase in Eurobond payments following a debt selling windfall that saw African hard currency debt markets surpass the $ 100 billion mark in 2019 could add to the pressure.

With dollar bond yields approaching double digits, governments like Angola, Ghana and Mozambique would be struggling to tap the markets just yet.

Indeed, no government in sub-Saharan Africa has sold Eurobonds since Gabon and Ghana did so in February, before COVID-19 hit.

Nonetheless, access to capital markets will be necessary to refinance but also to help close an external financing gap that the IMF estimates at $ 410 billion over the next three years.

“The potential battle is really going to be between the countries that want to grow and the investors who say we need to talk about fiscal consolidation right away,” said Andrew Macfarlane, EM credit strategist at Bank of America.

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Euromoney debt relief for Africa as the Covid-19 coronavirus crisis escalates

The IMF is working to reduce debt in order to free up fiscal space for the poorest countries in Africa to fight against Covid-19, as finance ministers say, full waiver of all public and private sector debt is essential.

The call comes as G20 leaders hold an emergency video summit on Thursday to discuss their response to the coronavirus.

Africa needs $ 100 billion in additional emergency resources to fight coronavirus and calls on IMF, World Bank and European Central Bank (ECB) to provide aid to quit to some $ 44 billion in debt service payments for 2020.

African finance ministers called on international donors to make $ 100 billion in resources available through a coordinated response to fight the virus in an open letter to the heads of the three multilateral development banks (MDBs) after a virtual conference facilitated by the United Nations Economic Commission for Africa (UNECA).

A more appropriate collective response led by G20 countries and international financial institutions would call for a temporary moratorium on debt service payments for all developing countries to all creditors – Senior Executive, Development Bank

Calling on the MDBs to lead the financing effort, ministers also called for the immediate waiver of interest payments on all public sector debt, estimated at $ 44 billion for 2020.

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Increase debt relief for developing countries



| Update:
May 30, 2020 9:58:04 PM


Even before COVID-19 began its deadly spread across their borders, developing countries were absorbing severe economic shockwaves emanating from China and advanced economies. And now, in addition to falling commodity prices and falling export demand, they are facing a sharp drop in emigrant and expatriate remittances, the disappearance of tourism, outings. sudden and massive foreign capital and currency depreciation.

Almost overnight, dozens of low-income countries became unable to repay their debts to sovereign and commercial creditors.

Despite all the talk about a global economic recovery later this year, policymakers in developing countries increasingly fear a prolonged slowdown. And now they must prepare for the impact of a deadly disease while lacking both adequate health infrastructure and the financial firepower of advanced economies.

Without immediate international action, developing countries will therefore be faced with a huge humanitarian crisis. The Managing Director of the International Monetary Fund, Kristalina Georgieva, recently warned that 170 countries could experience negative per capita income growth in 2020. In the developing world, this will cause crushing hardship for people already struggling to meet their needs. of their family. In fact, given widespread lockdowns aimed at tackling the spread of the virus, many stand to lose far more than their jobs: it’s not alarmist to say they could starve.

Of course, the international community has taken important steps to buy time for developing countries. The IMF and World Bank recently announced debt service relief for the world’s poorest countries until the end of 2020, and are rapidly disbursing additional funding – mostly in the form of additional loans. G20 governments have followed suit by freezing repayments on bilateral loans owed this year and called on commercial creditors to follow suit – a result that could free up to $ 40 billion.

More importantly, China has joined the G20 initiative, having previously refused to join multilateral debt relief efforts. A few years ago, the Chinese government vetoed a proposed Paris Club membership by sovereign creditors. Last year, he was also reluctant to share data with the IMF regarding debt restructuring in Africa.

However, the moratorium only postpones the day of the accounts by a few months. If debt payments resume next year, low-income countries will still face a burden that is hampering their response to the crisis. One solution would therefore be for the G20 to extend its debt service freeze until at least 2021, potentially making more than $ 50 billion available next year.

But now is also the time to consider major debt relief – perhaps along the lines of the Heavily Indebted Poor Countries (HIPC) Initiative, the most recent multilateral debt relief program. This program – launched in the mid-1990s under the auspices of the IMF and the World Bank, and with the participation of the Paris Club – provided about $ 76 billion to 36 countries, boosted social spending in the poorest economies and helped spark a resurgence, especially in Africa.

Before the pandemic struck, sovereign creditors were determined to avoid another HIPC-type effort. But this crisis will inevitably force a reassessment, and an extension of the debt service moratorium should be the first step in that direction.

Private sector creditors have so far been reluctant to embark on a moratorium, but some over-indebted countries are already moving towards restructuring, including of their Eurobond obligations. And while commercial lenders insist that creditor governments should not impose a “top-down” solution, past debt relief models suggest a variety of options, including Brady-style debt swaps and a buyout financed by the Bank. the World Bank like the one undertaken during the HIPC program.

The IMF and the World Bank should lead the way for the next step in debt relief, as they did with the HIPC initiative. Admittedly, the two institutions face financial and legal obstacles, including the obligation to offset their debt relief with their own funds – either contributions from member countries or gold reserves. But an international consensus on the need for debt relief can overcome these obstacles.

China’s participation will be essential, as its loans to Africa alone currently total at least $ 152 billion. China has been extremely hesitant to restructure – let alone forgive – these loans, but has publicly embraced the debt moratorium. At the same time, the Chinese authorities’ continued insistence on bilateral debt negotiations and “market principles” suggests that rhetoric has yet to catch up with practice.

It is essential that Chinese leaders understand the economic and political danger of a developing country debt crisis. Now is the time for China to prove that its recent massive lending to poorer countries was not motivated by debt trap diplomacy, as some have claimed. And the best way to do this is through a multilateral solution that works for both borrowers and lenders.

The same goes for all creditors. Postponing the day of calculating debt on debt will only make the pain of developing countries worse. To help them respond effectively to the twin crisis of disease and recession, the international community must offer swift, bold and comprehensive assistance.

Josh Lipsky, former Senior Communications Advisor and Speechwriter on the Management Team of the International Monetary Fund, is Director of Programs and Policy for the Global Business and Economics Program at the Atlantic Council. Jeremy Mark is a former senior communications advisor and speechwriter on the management team of the International Monetary Fund.

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We must expand debt relief for developing countries

We must expand debt relief for developing countries

By Josh Lipsky and Jeremy Mark

WASHINGTON, DC – Even before COVID-19 began its deadly spread across their borders, developing countries were absorbing severe economic shockwaves emanating from China and advanced economies. And now, in addition to falling commodity prices and falling export demand, they are facing a sharp drop in emigrant and expatriate remittances, the disappearance of tourism, outings. sudden and massive foreign capital and currency depreciation.

Almost overnight, dozens of low-income countries became unable to repay their debts to sovereign and commercial creditors.

For all the speak of a global economic recovery later this year, policymakers in developing countries increasingly fear a prolonged slowdown. And now they must prepare for the impact of a deadly disease while lacking both adequate health infrastructure and the financial firepower of advanced economies.

Without immediate international action, developing countries will therefore be faced with a huge humanitarian crisis. The Managing Director of the International Monetary Fund, Kristalina Georgieva, recently warned that 170 countries could experience per inhabitant income growth in 2020. In the developing world, this will cause considerable hardship for people who are already struggling to provide for their families. In fact, given widespread lockdowns aimed at tackling the spread of the virus, many stand to lose far more than their jobs: it’s not alarmist to say they could starve.

Of course, the international community has taken important steps to buy time for developing countries. The IMF and the World Bank recently ad debt service relief for the world’s poorest countries until the end of 2020, and rapidly disbursing additional funding – largely in the form of additional loans. G20 governments have followed suit frozen bilateral loan repayments due this year, and called on commercial creditors to do the same – an outcome that could release up to $ 40 billion.

More importantly, China has joined the G20 initiative, having previously refused to join multilateral debt relief efforts. A few years ago, the Chinese government vetoed a proposed Paris Club membership by sovereign creditors. Last year, he was also reluctant to share data with the IMF regarding debt restructuring in Africa.

However, the moratorium only postpones the day of the accounts by a few months. If debt payments resume next year, low-income countries will still face a burden that is hampering their response to the crisis. One solution would therefore be for the G20 to extend its debt service freeze until at least 2021, potentially making more than $ 50 billion available next year.

But now is also the time to consider major debt relief – perhaps along the lines of the Heavily Indebted Poor Countries (HIPC) Initiative, the most recent multilateral debt relief program. This program – launched in the mid-1990s under the auspices of the IMF and the World Bank, and with the participation of the Paris Club – provided roughly $ 76 billion in 36 countries, boosted social spending in the poorest economies and helped spark economic recovery, especially in Africa.

Before the pandemic struck, sovereign creditors were determined to avoid another HIPC-type effort. But this crisis will inevitably force a reassessment, and an extension of the debt service moratorium should be the first step in that direction.

Private sector creditors have so far been reluctant to embark on a moratorium, but some over-indebted countries are already moving towards restructuring, including their Eurobond bonds. And while commercial lenders insist that creditor governments should not impose a “from top to bottomOld debt relief models suggest various options, including the Brady-bond style debt swaps and a project financed by the World Bank redeem like that undertaken during the HIPC program.

The IMF and the World Bank should lead the way for the next step in debt relief, as they did with the HIPC initiative. Admittedly, the two institutions face financial and legal obstacles, including the obligation to offset their debt relief with their own funds – either contributions from member countries or gold reserves. But an international consensus on the need for debt relief can overcome these obstacles.

China’s participation will be essential, as its loans to Africa only currently totals at least $ 152 billion. China has been extremely hesitant to restructure – let alone forgive – these loans, but has publicly embraced the debt moratorium. At the same time, the Chinese authorities continued insistence on bilateral debt negotiations and “market principles” suggests that rhetoric has yet to catch up with practice.

It is essential that Chinese leaders understand the economic and political danger of a developing country debt crisis. Now is the time for China to prove that its recent large loans to poorer countries were not motivated by debt trap diplomacy, as some have. claims. And the best way to do this is through a multilateral solution that works for both borrowers and lenders.

The same goes for all creditors. Postponing the day of calculating debt on debt will only make the pain of developing countries worse. To help them respond effectively to the twin crisis of disease and recession, the international community must offer swift, bold and comprehensive assistance.

Josh Lipsky, former Senior Communications Advisor and Speechwriter on the Management Team of the International Monetary Fund, is Director of Programs and Policy for the Global Business and Economics Program at the Atlantic Council. Jeremy Mark is a former senior communications advisor and speechwriter on the management team of the International Monetary Fund.

Copyright: Project Syndicate, 2020.
www.project-syndicate.org

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ONE ups campaigns for total debt relief for poor countries

ONE ups campaigns for total debt relief for poor countries

A global campaign movement is pushing for debt relief for African countries and other poor countries due to the COVID 19 pandemic to be extended throughout 2021.

The movement called ONE claims that debt relief is one of the fastest and most effective ways to free money in developing country budgets.

He says the recent G20 agreement to suspend debt repayments for the poorest countries for the remainder of 2020 will free up much-needed cash. But it’s not enough.

In its campaign titled Ask the G20 to Suspend Debt to Fight Coronavirus, ONE says: “The current deal only covers bilateral debt (loans from other governments), which is roughly half of total debt service. of these countries. Debt to multilateral institutions and private debt, to bondholders and commercial banks, represent an additional $ 24 billion. ”

“Releasing the rest of the debt service is crucial to give governments the most flexibility and to ensure that the money saved through bilateral debt relief is not used to finance debt payments to multilateral creditors.” or private.

No country should be faced with the impossible choice of saving lives or paying off debt during this pandemic, ”ONE said.

ONE said the current G20 deal only covers the remaining eight months of 2020, but it’s clear things won’t get back to normal anytime soon.

On April 15, G20 finance ministers and central bank governors agreed to suspend debt repayments for the world’s poorest countries for the remainder of 2020 as part of their COVID-19 action plan. These included supporting a time-limited suspension of public debt and calling on private creditors and multilateral development banks to do the same.

Welcoming the move, Gayle Smith, CEO of The ONE Campaign, said: “The G20’s decision to suspend debt repayments from the world’s most vulnerable countries is a vital first step in this ongoing crisis and will allow these countries to prioritize the fight. COVID-19 and resist the first wave of economic impact of this global pandemic.

“We won’t beat this virus until we beat it everywhere. And we will not limit the economic impact of this pandemic unless we ensure a true global recovery that leaves no one behind.

“It is now essential that the world builds on this important first step, and we are now looking to private creditors, the IMF and the World Bank to do their part.”

But now ONE says the relief must be extended to the whole of 2021 to give greater security and a greater ability to plan the use of funds.

“For the 73 countries covered by the current G20 deal, that means an additional $ 22 billion available for the bilateral debt suspension crisis for 2021.”

“The crisis will affect all countries equally, regardless of their income level. No country in the world foresaw this kind of shock.

“Solidarity should therefore extend to all African countries that may be in difficulty, as requested by African leaders. Extending the bilateral debt suspension to all of Africa would free up an additional US $ 7.6 billion in 2020 and at least US $ 6 billion in 2021. ”

Edwin Ikhouria, Executive Director for Africa of The ONE Campaign, said: “As Africa faces the danger of slipping into a new debt crisis, we urge the G20 to expand not only the suspension of debt to the poorest countries, but also to all African countries. until 2021. Many of those not included – South Africa, Egypt and others – face tremendous economic pressure as they battle the virus.

“At the end of the day, suspending debt repayment is a short-term solution, as many of these countries will struggle to cope with the rising costs of debt. We will also need a longer term plan to restructure the debt, ”he added.

The G20 also called on multilateral lenders to provide comparable debt relief. The total multilateral debt of countries eligible for G20 debt relief stood at US $ 12 billion for 2020, of which about a third is owed to the World Bank.

At least US $ 13 billion is owed multilaterally in 2021. And expanding that to cover all African countries would add around US $ 6.5 billion in 2020 and US $ 5.8 billion in 2021 to previous totals.

So far, only the IMF has approved six-month debt cancellation for the 25 poorest countries through its Containment and Disaster Relief Trust Fund (CCRT), worth about $ 214 million, but the World Bank does not have a comparable debt relief fund.

Multilaterals are reluctant to participate in a debt stop because of concerns about their cash flow and credit ratings. In the short term, the World Bank fears that without the money from debt repayments, it will not be able to advance new loans and grants.

In the long term, the Bank is concerned about how a suspension might affect its credit rating, and therefore its ability to borrow money in the markets at the lowest available rates, and to lend that money to developing countries. development.

ONE is a global movement campaigning to end extreme poverty and preventable disease by 2030, so that everyone, everywhere, can lead a life of dignity and opportunity.

Whether it’s lobbying political leaders in global capitals or leading cutting-edge local campaigns, ONE is lobbying governments to do more to tackle extreme poverty and preventable disease, especially in Africa, and enables citizens to hold their governments to account.

Part of ONE’s successes is helping to secure at least $ 37.5 billion in funding for historic health initiatives, including the Global Fund to Fight AIDS, Tuberculosis and Malaria, and Gavi, the Vaccine Alliance, helping to secure legislation in the US, Canada and the EU on transparency in the extractive sector to help fight corruption and ensure that more money from oil and gas revenues gas in Africa is used to fight poverty, successfully advocating for official development assistance, which grew by $ 35.7 billion globally between 2005 and 2014, and helping push through new U.S. legislation on fuel poverty:; the Electrify Africa Act 2016.

BY ODINDO AYIEKO

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A good but incomplete start to debt relief

A good but incomplete start to debt relief

Paola Subacchi

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.

Most notably, the G20 has put in place 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, G20 leaders adopted a new common framework to address sovereign debt restructuring needs 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. Check more debt relief options here at Consolidationnow’s site.

Far from implicating a few unhappy countries at the margin, the current sovereign debt distress poses a potentially systemic risk. Since 2014, total sovereign debt as a percentage of GDP has not only increased substantially; it has also become more fragmented, owing to the use of more diversified debt instruments among a wider range of creditors.

In view of these circumstances, the global financial safety net urgently needs to be widened beyond the support currently offered by international financial institutions such as the International Monetary Fund and the World Bank. To this end, the DSSI has taken a first step by suspending payments of principal and interest on debt maturing between May 1, 2020 and June 30, 2021 (having been extended from December 31, 2020), thereby expanding the safety net of at least 77 developing countries.

But while DSSI offers some respite, it also only speeds up debt repayment, leaving deferred payments to be repaid in full between 2022 and 2024. Debtor countries will therefore have to make up the difference with larger repayments, and could even need to borrow more to service their frozen debt, on top of any other debt incurred during the COVID-19 crisis. The 46 countries that have requested debt suspension so far will eventually have to cover $ 5.3 billion in deferred payments, in addition to the $ 71.54 billion in pre-existing commitments; and any other debt incurred since the COVID-19 outbreak will add to the burden.

While the latest G20 debt initiative misses the mark in many ways (especially when it comes to addressing debtor-creditor asymmetries), it has at least enshrined a common framework for debt reduction in the pipeline. the international agenda. The new initiative has two distinct merits. First, by allowing for a case-by-case approach, it addresses a specific concern raised by private sector creditors, a key group that was not included in the DSSI.

Second, the new framework incorporates China, after overcoming some initial resistance stemming from the definition of a state bank (which raised concerns that the Development Bank of China and the Export-Import Bank of China themselves exposed to debt restructuring). Since China holds around 63% of total debt to G20 member states, its participation is critical to the initiative’s success.

The common framework is an important first step in the right direction. But the G20 cannot stop there; the initiative should be extended to a common sovereign debt restructuring program. Sovereign debt is the only category of debt without a bankruptcy mechanism. While individuals and businesses can file for bankruptcy, a country cannot.

So far, the international community has relied on a contractual approach to prevent and resolve sovereign debt problems. But this method often involves deep asymmetries between the treatment of debtors and creditors, resulting in an inequitable distribution of losses among different types of creditors. We need a multilateral agency specifically tasked with coordinating creditors, sharing information and reducing the scope of information arbitration.

In addition, the new framework should help debtor countries throughout the restructuring process. For example, as the IMF has already suggested, the G20 should task international financial institutions with providing limited financing in order to give debtors a negotiating space to secure a lasting debt restructuring deal.

To tie it all together, the G20 should build on its Sustainable Financing Guidelines to promote responsible lending and borrowing alongside orderly and multilateral debt restructuring. It should also promote debt transparency and provide the necessary technical assistance, so that countries can strengthen their debt management capacity before they get into debt distress.

Clear procedures, transparency, oversight and accountability for sovereign debt management are public goods in the broad sense. Everyone deserves to be fully informed about the actions their respective countries take when borrowing abroad, just as they should be aware of their country’s debts and commitments. A framework that clarifies every step of the process of taking on debt – including the necessary checks and balances – is essential to securing responsible borrowing (and lending) more broadly.

Paola Subacchi, professor of international economics at the Queen Mary Global Policy Institute at the University of London, is the author, most recently of The cost of free money (Yale University Press, 2020).

Copyright: Project Syndicate, 2020.
www.project-syndicate.org

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CMBS Debt Relief Requests Decline, But Expected to Rebound in May

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After facing a tsunami requests for relief in the first half of April, loan officers saw a drop in inquiries in the last two weeks of the month. But it probably won’t last.

During the two-week period ending April 26, the four largest major commercial mortgage-backed securities services (Wells Fargo, Midland, Keybank and Berkadia) received a total of 1,301 inquiries, or less than half of the 2,824 total in the previous two-week period, according to a new report from Fitch Ratings. The total amount of affected loans declined only slightly, from $ 51.5 billion to $ 48.5 billion.

“This is not a positive indicator, but probably the calm before the storm as larger delinquencies and more requests for relief arrive in May,” Adam Fox, senior director of Fitch US CMBS, said in a statement.

The drop in inquiries appears to be due to the “month-end schedule and collection of rents and debt service payment in April,” the report said, noting that agents expect more defaults. this month.

In the multi-family sector, for example, early predictions of a massive drop in rents turned out to be exaggerated because 89 percent of tenants made payments in April – although many landlords expect May to be worse.

During the same period as the queries decline, however, the number of loans transferred to special services fell from 113 to 218, or $ 8.4 billion from $ 5.7 billion. However, the report notes that not all of these loans are necessarily in default. In May, Fitch “expects special service transfers to increase as defaults increase and more complex changes are needed.”

Almost 26% of all CMBS borrowers have contacted their services since Fitch began collecting data on the pandemic, the report notes. In the meantime, 3% have been transferred to a special service.

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In search of debt relief, Angola opens oil fields to China

This month, Angola reduced the number of oil shipments sent to China to pay off its debts, and also said it had asked for G20 debt relief.

Oil-backed loans represent about two-fifths of Angola’s external debt and most of its obligations to China.

Luanda and Beijing ”both have good reasons to move away from the current model“Oil used for debt service,” said Nick Branson, senior analyst for Africa at Verisk Maplecroft in London.

READ MORE Angola is coronavirus collateral damage hit by oil and China

Since entering an IMF program in December 2018, Angola has come under increasing pressure from the fund to pay off its secured debts, Branson said.

Verisk Maplecroft expects Luanda to offer Beijing an increase in equity stakes in the six oil fields where Angolan and Chinese oil companies are partners under the banner of Sonangol Sinopec International (SSI).

  • This would replace ongoing crude shipments and fit into Sinopec’s strategy to invest in high-quality production assets, Branson said.
  • Verisk expects Sinopec to acquire part of Sonangol’s stake in Total block 32 or Eni’s 15/06 block.

READ MORE Angola: on the trail of the stolen billions

Branson predicts that the regulator, the Angolan National Petroleum, Natural Gas and Biofuels Agency (ANPG) offer Sinopec preferential treatment in discovered resource opportunities, such as marginal fields, where tax conditions are attractive at lower crude prices, and undeveloped areas owned by dormant indigenous companies.

  • “It would be a much more attractive opportunity than the onshore blocks that the ANPG plans to offer as part of its 2020 license cycle,” he said.

G20

Debt negotiations with Beijing have already started and it is “Really essential” for Angola to obtain some form of relief, says Thea Fourie, Senior Economist for Sub-Saharan Africa at IHS Markit in Centurion, South Africa.

READ MORE Coronavirus: how China intends to restore its image in Africa

  • She notes that in 2015-2016, Angola renegotiated bilateral loans from China and Brazil to reduce repayments.
  • Despite a partial rebound, oil remains well below the $ 55 per barrel assumed in the original 2020 national budget.
  • At current levels, according to Fourie, significant fiscal adjustments, including cuts in government spending and additional funding for a larger budget deficit, will be needed.

Juvelino Domingos, economist in Luanda, expects Angola to get debt relief from China and G20 if necessary.

  • “China is still determined to support Angola and ready to absorb some risks with the debt refinancing and, in an extreme scenario, to forgive some of it,” he said.
  • “The G20 decision may not be to the extent desired, but it can add value to the body of efforts that the executive has put in.”
  • The chances of not getting relief from the G20 are “remote,” he said.

Angola can make necessity a virtue by reduce losses suffered by public enterprises, says Domingos. “This can be achieved by speeding up the privatization process, divesting non-performing assets and limiting the recapitalization of these companies to well-defined restructuring plans.”

At the end of the line : Angola is in a good position to obtain debt relief, but must use it to rationalize its state-owned enterprises.

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Save the Children: Convert $ 60 billion in debt into funds to fight COVID-19 in the world’s poorest countries – World

Media contact: [email protected]

FAIRFIELD, Connecticut (April 14, 2020) – The world’s 75 poorest countries are expected to pay $ 60 billion in debt to external creditors in 2020 – more than they should receive donor aid to fight COVID-19 . This burden will rob them of the financial resources they need to invest in tests, medical equipment, health workers and safety nets to fight the epidemic, and push millions more children into poverty, a today notified Save the Children.

In one open letter to the G20 finance ministers ahead of the spring IMF and World Bank meetings, the agency is urging that the $ 60 billion in debt repayment be converted into an investment fund to fight the coronavirus pandemic.

“Providing aid through the World Bank and other donors while allowing commercial debt payments to absorb much of the transfer would be the financial equivalent of pouring water into a bucket. with large holes, ”the letter says.

Without suspension of debt payments, governments in sub-Saharan Africa will spend more on debt than on health, the agency warns.

The letter also states: “The governments of these countries are now faced with a heinous choice. They can either pay off creditors or invest in the frontline health services, safety nets and economic stimulus measures needed to alleviate the pandemic, fight poverty and restore inclusive growth. They can’t do both. If debt takes precedence over people, children will be the first and hardest hit. “

Save the Children has welcomed proposals to suspend payments from official bilateral credits owed to governments, but urges the G20 to go further. Commercial creditors account for nearly half of the total repayments of the poorest countries – and the agency wants banks, commodity traders and sovereign bond holders to match public debt relief.

“It’s not just a question of financial management,” said Janti Soeripto, President and CEO of Save the Children. “At the end of the day, it’s about the lives of vulnerable people and the future of children. Failure to act decisively now could set the stage for a “lost decade” marked by rapid setbacks in efforts to reduce poverty, malnutrition and child mortality.

With the bite of the economic recession, countries across the developing world are battling a deadly mix of COVID-19 and rising poverty. Based on recent World Bank growth projections, Save the Children estimates that an additional 22 to 33 million children could fall into poverty in Africa alone over the next year.

Save the Children calls for the G20 spring meeting to agree on a framework for an immediate suspension of debt service for countries seeking support, including:

The Paris Club of creditors, Chinese state creditors and creditors of Arab institutions to suspend repayments of principal and interest with immediate effect;

Commercial creditors should apply similar conditions, with compliance encouraged by making eligibility for COVID-19 recovery funding conditional on participation;

Increased funding to support multilateral debt relief through IMF and World Bank.

“Debt relief is not only the right thing to do for vulnerable people in poor countries, it is the smart thing to do for all countries. The coronavirus does not respect borders. If we fail to support governments and communities in the poorest countries, we could open the door to a resurgence of COVID-19 in countries currently flattening the curve, and a financial burden for the poorest countries including it will take years to recover, ”said Soeripto.

Save the children believes that every child deserves a future. Since our founding 100 years ago, we’ve changed the lives of over a billion children. In the United States and around the world, we give children a healthy start in life, the opportunity to learn, and protection from harm. We do whatever it takes for children – every day and in times of crisis – to transform their lives and the future we share. follow us on Facebook, Instagram, Twitter and Youtube.


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Kenya avoids debt reorganization in common G20 framework

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By Duncan Miriri

NAIROBI, March 10 (Reuters) – Kenya will not seek to review its debt under a G20 initiative because it fears it will reduce its ability to raise funds in global capital markets, a senior official said on Wednesday. responsible for the Treasury.

The G20 group of major economies introduced a “common framework” to help developing countries cope with the financial pressure of COVID-19 by allowing them to suspend bilateral debt service and then restructure their debts.

“We are not,” Haron Sirima, head of the Treasury’s debt management office, told reporters when asked if the government would seek to restructure its debt under the framework, which also involves private creditors. . He did not give more details.

Neighboring Ethiopia, which said it would go through “debt processing” through the common framework in January, suffered downgrades as a result.

Kenya could raise funds in international financial markets later this year if it does not get enough cheap funds from lenders like the World Bank, Sirima said.

The government will also use new issuance of sovereign bonds to refinance maturing debt and manage its liquidity and liabilities, he said.

The impact of the COVID-19 pandemic has weighed on Kenya’s tax revenues at a time when more of its debt is falling due and while it is still grappling with yawning budget deficits.

In January, it reached debt service suspension agreements with the Paris Club and other creditors, including China, covering the six months through the end of June this year.

Under the agreements, which are part of the G20 initiative to offer debt relief to poor countries, Kenya is deferring payments worth $ 600 million due during the period.

The deferred amount, which includes $ 378 million for China alone, will be paid over five years after a one-year grace period. (Edited by Larry King) (([email protected]; Tel: +254 20 4991239; Reuters messaging: [email protected])) Keywords: KENYA DEBT / (UPDATE 1, PIX )

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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