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A prosperous middle class must review its behavior and financial tools


With the Bangladesh economy shifting from a ‘basket’ to ‘unanticipated achievements’ over the years, a large chunk of the population has entered the socioeconomic category of the middle class and affluent consumers (MAC). .

The group of people, with a monthly income starting at $ 401, already representing over 7% of the population, is growing at a double-digit rate every year to help Bangladesh overtake its peers to catch up in terms of getting a lot. more people with increasing disposable income, according to a 2015 report from the Boston Consulting Group (BCG).

The research firm predicts that by 2025, nearly 3.5 million Bangladeshis will become MACs – more than doubling in a decade.

With a significant increase in income, CAMs, especially those in urban areas, have already undergone a massive change in their lifestyle.

Their consumption priorities today – affinity for buying brands, personal cars, frequent dining out, vacations abroad, etc. – exceeded the imagination of their past generations, said Dr Zahid Hussain, former chief economist of the World Bank.

At the same time, their life goals have taken a paradigm shift which typically involves affording expensive durable consumer goods, luxury apartments, raising children abroad, traveling the world and even. plan for early retirement or start their own business.

While much higher incomes in their past generations may justify such an increase in consumption as well as the aspirations of middle-income people, most of them do not seem keenly aware of the growing cost of their aspirations.

The biggest problem, observe experts such as Dr Zahid Hussain, is the gap between the aspirations of CAMs and the current actions to meet their aspirations.

They say it is essential to define one’s aspirations in terms of time and number (the actual future costs) to back-calculate the required current investable surplus and the required rate of growth of that surplus. Only this can enable people to materialize their aspirations in a timely manner.

Such objective preparation will help maintain the right financial disciplines to continue to generate the right surplus; and, at the same time, motivate to choose the right financial tools that will deliver the required rate of growth.

Bangladeshis generally save after consumption. Usually, they tend to go for fully secure solutions like DPS, FDR, National Savings Certificates (NSCs), and each of the tools generates lower returns these days.

Because of these two facts, the fundamentals of financial planning can be compromised – neither the right amount of surplus is generated nor what is generated gives the risk-adjusted return required to respond to new developments in a timely manner. types of aspirations.

On top of that, inflation has a critical impact given the current savings rate in the market.

The net result of these is – people’s financial assets may actually be declining, if the savings rate is lower than inflation, and they slowly drift away from their life goals.

Middle-income people are worried about it today, especially since they have started to face declining yields of popular vehicles in which they historically prefer to invest their excess income – bank deposits or NSCs, said Dr M Masrur Reaz, chairman of a private sector think tank, Policy Exchange of Bangladesh.

After an unprecedented drop in interest on bank deposits in 2020-2021, the central bank only increased this for term deposits to par with the official inflation rate only a few months ago.

The government has also restricted the purchase of NSC (Sanchaypatra) – Tk 50 lakh by an individual and a similar supplement in common name, which is not enough for many people to meet their aspirations, which is not not enough for the well-to-do, Dr says Reaz.

The trend of low yielding banks and domestic savings certificates is expected to prevail and it should, he added while speaking of the need for a low interest rate environment as a catalyst for doing business. .

Coupled with this decline in savings returns, middle-income people will also face restrictions in tax space. As the government reforms tax rules to improve tax-to-GDP ratios, middle-income people will need financial products that offer maximum tax breaks or tax breaks, something other economies are very concerned about.

Bangladeshi MACs have now received their wake-up call to rethink the way they park money for a much better financial life one, two or three decades later, said economist Ahsan H Mansur, executive director of the Policy Research Institute.

Just beating inflation doesn’t help savers improve their lives and everywhere the idea of ​​saving in banks for financial well-being and increasing family wealth is almost dead, Dr Mansur said.

“The financial behaviors of our people as well as the choices of financial products must evolve according to their new types of aspirations. If people are serious about meeting their life goals on time, they need to look for products that far beat inflation. while granting them a maximum tax reduction.

In short, it’s time for middle-income people to rethink their financial behaviors and tools, experts said.


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Global debt on the rise, Africa hardest hit | News | DW

The “Debt Report 2019”, presented on Wednesday in Berlin by Jubilee Germany, paints a bleak picture of global debt. The organization, which is made up of civic and religious groups, is engaged in efforts to end the problem.

The report argues that low interest rates and cheap credit are pushing poorer countries to borrow beyond their means, trapping them in a debt trap from which they can never escape.

Read more: Global Wealth Report: The Rich Are Getting Richer Again

Of the 154 countries analyzed by Jubilee, 122 are seriously indebted, three more than in 2017.

The organization called for debt moratoriums and even debt relief for the most indebted countries, as well as an international bankruptcy plan. In addition, he calls for a public register listing the debt of each country, its creditors and the cost of servicing this debt.

Speaking in Berlin, Klaus Schilder of the Catholic aid organization Misereor said “the situation is really dire”.

The tragic example of Mozambique

Schilder used Mozambique as an example of what can happen to debt-burdened countries in the event of a disaster. Mozambique was hit by a cyclone following rising waters in mid-March, but due to its dire financial situation, it does not have sufficient funds to help the 1.85 million people affected by the devastation.

Asian countries such as Mongolia and Bhutan and some Middle Eastern countries such as Bahrain and Lebanon are heavily indebted, but the report says Africa is the continent hardest hit by the crisis.

Almost all African countries are heavily indebted, with the report classifying the situation in several countries as critical or very critical.

Angola, Gambia, Eritrea, Sao Tome and Principe, Somalia, South Sudan and Sudan are in such dire straits that they have simply stopped paying their debts.

Although corruption is one of the causes of indebtedness, the report points directly to predatory lending practices.

Read more: Africa’s debt crises are not the fault of creditors alone

“China is not the bad guy”

Although China often gets a bad rap for creating debt traps when funding infrastructure projects, Jubilee has come to Beijing’s defense.

From 2000 to 2017, China extended some 143 billion euros ($161 billion) in credit to African nations and businesses, but Jubilee’s Jürgen Kaiser said, “China is not the bad guy.” He also noted that China had canceled large debts in the past.

The report made it clear that the much larger problem of predatory lending was posed by institutions such as the World Bank or European development funds.

“Initiatives like the ‘Compact with Africa’, created while Germany held the G-20 presidency, can also pose a very high debt risk depending on the funding model used,” according to Klaus Schilder of Misereor.

The German government is currently planning a new €1 billion African investment fund.

Ultimately, Schilder said, it is citizens who suffer when countries run into debt: “When a large portion of a country’s budget is spent servicing debt, it becomes impossible for governments to govern. – and they cannot allocate sufficient funds to sectors like health and education.”

Daniel Pelz contributed to this story.

Every evening at 6:30 p.m. UTC, DW’s editors send out a selection of the day’s news and quality journalism. You can sign up to receive it directly here.

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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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Developing countries need debt relief in virus fight, says WHO | Coronavirus pandemic

The World Health Organization says it supports debt relief for developing countries with the IMF and World Bank.

The head of the World Health Organization (WHO) has expressed deep concern over the rapid escalation and global spread of COVID-19 cases of the novel coronavirus, which has now reached 205 countries and territories.

WHO Director-General Tedros Adhanom Ghebreyesus said on Wednesday his agency, the World Bank and the International Monetary Fund (IMF) supported debt relief to help developing countries cope with the social and economics of the pandemic.

Tedros hailed India’s $22.6 billion economic stimulus package – announced after a 21-day lockdown imposed last week – to provide free food rations to 800 million poor people, cash transfers to 204 million poor women and free cooking gas to 80 million households for the next three months.

“Many developing countries will struggle to implement social protection programs of this nature,” Tedros said during a virtual press conference at the organization’s headquarters in Geneva.

“For these countries, debt relief is essential to enable them to take care of their people and avoid economic collapse. This is a call from the WHO, the World Bank and the IMF – debt relief for developing countries,” he said.

Corn debt-relief the processes are long, Tedros said.

“Over the past five weeks there has been near exponential growth in the number of new cases and the number of deaths has more than doubled in the past week,” he said.

“In the next few days, we will reach one million confirmed cases and 50,000 deaths worldwide,” he added.

China, where the coronavirus outbreak first emerged in December, reported a decline in new infections on Wednesday and revealed the number of asymptomatic cases for the first time, which could complicate reading trends in the epidemic.

Asked about the distinction, Dr Maria ver Kerkhove, a WHO epidemiologist who was part of an international team that visited China in February, said the WHO definition includes laboratory-confirmed cases” regardless of the development of symptoms.

“From the data that we’ve seen from China in particular, we know that individuals who are identified, who are listed as asymptomatic, about 75% of them actually develop symptoms,” he said. she said, describing them as having been in a “pre-symptomatic phase.” The novel coronavirus causes the respiratory disease COVID-19.

The outbreak continues to be driven by people showing signs of illness, including fever and cough, but it is important that the WHO captures this “full spectrum of illness”, she said. added.

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IMF right to maintain Covid support, but on debt relief it’s crumbs | Larry Elliot

go there and spend. Don’t worry about accumulating debt. You will make a mistake if you remove support from your savings too soon. This is the message of Kristalina Georgievathe managing director of the International Monetary Fund, to finance ministers as they consider how to deal with the economic damage caused by Covid-19.

Well, some of them at least. Finance ministers such as Rishi Sunak definitely get the green light to spend more. This is sound advice and should be heeded, not least because rock-bottom interest rates mean debt servicing costs go down even as borrowing goes up.

The IMF is taking a tougher line on countries that might ask for emergency bailouts. The government of Argentina, for example, will find that any aid it receives will come with strings attached that are sure to be painful and unpopular.

Finally, there are the poorest countries in the world, those which lack the capacity to provide unlimited stimulus to their economies and which, in many cases, are struggling with unpayable levels of debt.

Georgieva and the President of the World Bank, David Malpassboth know that a comprehensive debt relief program is needed for these countries, a program that involves all bilateral creditors and both the private and public sectors.

Unfortunately, that won’t happen at this year’s IMF annual meeting. All that is offered to the 70 or so poorest nations is a six-month extension of the G20 debt suspension plan agreed to in the spring. This does not represent the significant reduction that Malpass was talking about. It simply represents the brushing of a few crumbs from the rich man’s table.

Biden, not just coronavirus, could upend China’s recovery

For Xi Jinping, there will have been quiet satisfaction seeing the value of China’s stock market soar above the previous record high of $10.05bn (£8.06bn). Earlier this year, that other self-proclaimed strongman, Donald Trump, imagined a record run on Wall Street would propel him to a second term in the White House.

Now, unless he pulls off one of the most remarkable comebacks of all time, Trump is on his way to a big defeat at the hands of Joe Biden. A pandemic that started in China is going to be a deciding factor in determining the outcome of the US presidential election.

Stock prices have hit high levels in China before, and five years ago they came back to Earth with a bump. They could do it again if Covid-19 causes another deep fall in the global economy, stifling demand for Chinese exports.

But there are reasons why the Chinese stock market is rising high. Beijing has been content to use authoritarian measures to control the pandemic and recorded no cases in its latest daily report to the World Health Organization.

Control of the virus means the economy has recovered faster than expected. China’s growth rate, according to the IMF, will drop from 6.1% to 1.9% this year, but at least it remains positive, which is more than can be said for the United States , which are expected to contract by 4.3%.

Moreover, with Trump seemingly on his way out, investors believe the Cold War between Washington and Beijing will unfreeze. True, but probably not very much. Biden should be bad for the US stock market. It might not do much for China either.

£800million is the first – but won’t be the last – draw on the HS2 overrun fund

The least surprising title winner of the day goes to ‘Cost of HS2 high-speed rail line rises by £800m’. Apparently the cost of improving Euston station will cost at least £400m more than expected, while the discovery of more asbestos than expected will add another £400m to the bill.

Although there is a provident fund to cover overspending, it is only £5.3bn. And one thing is certain: £800m is the first draw on that reserve. It won’t be the last.

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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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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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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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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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Chinese debt could implode emerging markets


The new coronavirus has crippled the global economy. Global growth is expected to drop from 2.9% last year to deeply negative territory in 2020, the only year after 2009 that this has happened since World War II. Recovery is likely to be slow and painful. Government restrictions aimed at preventing the resurgence of the virus will inhibit production and consumption, as will defaults, bankruptcies and staff cuts that have already produced record unemployment claims in the United States.

But not all countries will endure the pain of the global recession equally. Low-income countries suffer from poor health infrastructure, hampering their ability to fight the coronavirus, and many of them had dangerously high debt levels even before the pandemic required emergency spending massive. Foreign investors are now withdrawing capital from emerging markets and sending it back to the rich world in search of a safe haven. As a result, countries like South Africa, Kenya and Nigeria see their currencies drop in value, making it difficult, if not impossible, to service foreign loans.

Faced with the threat of financial ruin, poor countries have turned to multilateral financial institutions such as the International Monetary Fund and the World Bank. The IMF has already released emergency funds in at least 39 countries and, by the end of March, more than 40 more had approach there for help. The World Bank has accelerated $ 14 billion for crisis relief efforts. Yet even if they offer extraordinary amounts of aid, the IMF and the World Bank know that these amounts will be far from sufficient. For this reason, they called on the Group of 20 creditor countries to suspend the collection of interest payments on loans they have made to low-income countries. On April 15, the G-20 pledged: all of its members agreed to suspend these repayment obligations until the end of the year – all but one member, that is.

China has adhered to the G-20 pledge but added caveats that mock it. China is effectively excluding hundreds of large loans made under its Belt and Road Initiative (BRI) for infrastructure development. “Preferential loans,” such as those granted by the Import-Export Bank of China (EximBank), “are not applicable to debt relief,” the Beijing spokesperson said. World time the day after the G-20 announcement. EximBank has funded more than 1,800 BRI projects in dozens of countries. By continuing to demand interest payments on loans, China will force poor countries to choose between servicing their debts and importing essentials such as food and medical supplies.

PREFERENTIAL OR PREDATORY?

Based on the information we have gathered from a wide range of sources, we estimate that between 2013 and 2017, China lent more than $ 120 billion to 67 countries, mostly developing, through the BIS. Exact figures are impossible to obtain due to the opacity of these loan agreements. But the loan growth that China reported for 2018 and 2019 suggests that these countries’ BIS debts now total at least $ 135 billion.

China has granted nearly half of all new loans to countries considered to be at high risk of default.

Figures like these put China as the number one international lender. In 2017, Pakistan, for example, had borrowed at least $ 21 billion from China, or 7% of its GDP. South Africa had borrowed about $ 14 billion, or 4% of its GDP. Both countries, like many others, owe much more to China than to the World Bank. Other countries owe China even more as a percentage of GDP. We estimate that in 2017, Djibouti’s debts to China totaled 80% of GDP; Ethiopia accounted for almost 20% of the GDP. And Kyrgyzstan, one of the first countries to receive IMF funds for the coronavirus, owed China more than 40% of its GDP. Since 2013, China has provided almost half of all new loans to countries considered to be at high risk of default.

China charges substantial interest on its loans. Although Beijing calls its rates “preferential,” some BRI projects, especially the larger ones, bear interest rates. more than three percentage points higher than the cost of capital of Chinese banks, about four to six percent. World Bank dollar loans to low-income countries, on the other hand, tend to have low rates. just above one percent. And given that China itself is one of the World Bank’s biggest borrowers, with $ 16 billion in outstanding loans, the country effectively borrows cheaply from the developed world and repays, through the BIS, a significant increase.

AN IMPOSSIBLE CHOICE

Chinese low-income borrowers depend on the dollar, the euro, and other major foreign currencies to pay for their imports and repay their debts. But many lack sufficient reserves to cover both. Zambia, a BRI client who has borrowed more than 6 billion dollars from China, has enough reservations cover only two-thirds of the foreign payments it will have to make in the coming year. Imports and debt servicing over the next year are expected to wipe out South Africa’s total reserves. If these countries default on their sovereign debt, which increasingly seems likely, they would be excluded from international credit markets and unable to manage the fiscal and trade deficits needed to curb the pandemic.

If the developing world cannot repay its debts, the global health and economic crisis will only worsen.

However, these countries are not the only ones to suffer from it. Even if defaults only start in a few countries, they will spread widely as investors flock to US Treasuries, German Bunds, gold and other traditional safe havens. At the beginning of April, foreign investors had already took of over $ 96 billion from all emerging markets, an exit rate well above that of the last financial crisis. As a result, the South African rand and the Brazilian real have each fallen 25% so far this year. Additional capital outflows will push these currencies down any further, the costs of sending essential imports are skyrocketing. Food prices are already prick across Africa. The United Nations projects that the continent will need to spend an additional $ 10.6 billion on health care this year to fight the pandemic, with foreign medical supplies and pharmaceuticals making up a large part of that. Increased capital flight therefore means greater malnutrition, faster disease transmission and more migration.

In short, if the developing world cannot repay its debts, the global health and economic crisis will only get worse. China, where the pandemic started, has certainly taken an economic hit. But with over $ 3 trillion in foreign exchange reserves and a currency that has remained stable throughout the crisis, it is much better positioned to weather the storm than most of its borrowers. These borrowers, with plummeting currencies, capital flight and threatening medical bills, are unable to repay the BIS to China.

Although commentators have long compared the BIS to a Marshall Plan for developing countries, the two initiatives could not be more different in their approach. The size of the funding may be comparable (US Marshall aid was worth about $ 145 billion in current dollars), but the similarities end there. Marshall aid consisted entirely of grants, while BIS funding consisted almost entirely of debt. This debt is now choking developing countries as they struggle to emerge from a devastating pandemic. Rather than adding to their woes, China should do its part to help lift these nations out of the crisis. It can start by declaring a full moratorium on BIS debt repayment until at least mid-2021.

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World Bank and IMF advocate for debt relief for the poorest countries

ISLAMABAD: The World Bank Group and the International Monetary Fund (IMF) in a joint statement on Wednesday called on all official bilateral creditors to suspend debt payments from countries of the International Development Association (IDA) which request the abstention following the outbreak of the COVID-19 virus.

Pakistan is also on the list of 76 countries eligible to receive IDA resources under concessional loans. Pakistan owed about $ 11 billion to official bilateral creditors of the Paris Club countries and Islamabad had already obtained debt relief in 2002-2003 for 10 years when Pakistan decided to support the United States in its war against terrorism in the aftermath of September 11, 2001. During this period, Pakistan had benefited from a tax cushion on the debt repayment front of official bilateral Paris Club donors. Pakistan had to sign an agreement with each country separately after making an agreement to get a Paris Club concession. It is not yet clear whether Islamabad would seek debt relief from official donors or not at this point, as this correspondent made an effort to contract Federal Minister of Economic Affairs Hammad Azhar to get the version and also sent him a message. but received no response until this report was tabled. .

However, the World Bank Group and the International Monetary Fund issued a joint statement to the G20 regarding debt relief for the poorest countries and said the coronavirus outbreak is likely to have serious economic consequences. and social for the IDA countries, which are home to a quarter of the world’s population and two-thirds of the world’s population live in extreme poverty.

He said that with immediate effect – and in accordance with the national laws of creditor countries – the World Bank Group and the International Monetary Fund are calling on all official bilateral creditors to suspend debt payments from IDA countries seeking forbearance. . “This will help meet the immediate liquidity needs of IDA countries to meet the challenges posed by the coronavirus epidemic and will allow time for an assessment of the impact of the crisis and the financing needs for each country,” added the joint press release.

“We invite the leaders of the G20 to instruct the World Bank Group and the IMF to carry out these assessments, in particular by identifying the countries with unsustainable debt, and to prepare a proposal for comprehensive action by the” bilateral creditors ” We will seek approval of the proposal from the Development Committee at spring meetings (April 16 and 17).

“The World Bank Group and the IMF believe it is imperative at this time to provide a sense of global relief to developing countries as well as a strong signal to financial markets. The international community would welcome the support of the G20 to this call to action, ”he added. concluded.

Meanwhile, Federal Economic Affairs Minister Hammad Azhar said, “We welcome the joint WB and IMF statement calling on G20 countries to suspend debt payments from dev [developing] countries. Prime Minister Imran Khan has urged this since the COVID-19 pandemic. We hope that it will be accepted, and we also urge the multilaterals to reduce their debts. “

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Zimbabwe advised improving human rights and paying off debts for relief

Zimbabwe flag image

One of Zimbabwe’s biggest creditors turned down a government request for debt relief until it improved its human rights record and paid off outstanding debt arrears.

The southern African country’s appeal for relief was rejected in a June 12 letter to Zimbabwe’s Minister of Finance Mthuli Ncube from Odile Renaud-Basso, president of the Paris Club.

The group, to which Zimbabwe owed $ 3.26 billion in 2018, represents creditor countries, including members of the Organization for Economic Co-operation and Development.

The letter, seen by Bloomberg, was in response to an April 2 appeal from Ncube to chiefs of the International Monetary Fund, world Bank, African development bank, Paris Club and European Investment Bank search for an arrears clearance and debt relief program.

Zimbabwe’s relations with multilateral lenders have been strained for nearly 20 years as it has failed to meet its payments and a series of elections has been marred by violence and irregularities.

“Zimbabwe’s desire to normalize its relations with the international community can only progress after the implementation of fundamental economic and political reforms,” said Renaud-Basso. The necessary reforms relate to “respect for human rights, in particular freedom of assembly and expression,” she said.

Debt relief was a key part of Ncube’s strategy to revive the economy after two decades of stagnation. But attempts to drive economic reforms and improve relations with lenders have been thwarted by the Zimbabwean security forces’ violent crackdown on a series of protests.

Schwan Badirou-Gafari, secretary general of the Paris Club, declined to comment, as did Clive Mphambela, spokesperson for the Zimbabwean Treasury.

(With contributions from Bloomberg)

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EU to discuss debt relief for Africa – EURACTIV.com

EU countries will discuss a request for debt relief from five Sahel countries as part of efforts to help them deal with the coronavirus, European Council chief Charles Michel said on Tuesday (April 28th).

After video interviews with the leaders of the “G5 Sahel” countries – Mauritania, Mali, Burkina Faso, Niger and Chad – Michel said the international community must do more to help Africa fight the pandemic.

Michel said the G5, whose region is on the front line of a nearly eight-year-old assault by armed Islamists, had called for foreign debt cancellation.

“We have agreed to have this debate with the (EU) member states, with our international partners – the IMF in particular,” Michel told reporters after the talks.

Africa is seen as particularly vulnerable to the pandemic, with experts fearing the continent’s weak health systems may not be able to stem the spread of the virus.

On the economic level, the fall in demand for minerals and tourism combined with the effect of confinements to slow the contagion should hammer African economies.

Michel noted that debt relief for Africa was not a new debate, but said the potentially devastating economic impact of the coronavirus had put it back on the agenda.

“I think there is a legitimate question, how is it possible to support African countries by opening this political debate on debt relief,” he said.

The IMF expects Africa’s GDP to shrink by 1.6% in 2020 – its worst result on record – while the World Bank has warned that the region could slip into its first recession in 25 years.

The G20 group of the world’s largest economies agreed earlier this month to a halt to debt payments for the world’s poorest countries, many of which are in Africa.

EU foreign policy chief Josep Borrell tweeted that the bloc had announced “an additional 194 million euros” for G5 security forces as well as the provision of basic services in fragile areas.

He gave no further details on funding, timing or whether it was new funds or funds redirected from elsewhere.

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Calls for sovereign debt relief grow

When the man who led the UK’s austerity program starts campaigning for debt cancellation, you know the idea has become mainstream. Here’s what George Osborne’s chief of staff from 2006 to 2015, Rupert Harrison, said Last week:

He is not the only one. Former Governor of the Banque de France Jacques de Larosière said last week that some sovereigns would need to restructure their debt obligations.

The Peterson Institute, based in Washington, has, for its part, called for a debt stop for low- and middle-income countries, a topic that should dominate the upcoming (virtual) spring meetings of the IMF and the World Bank.

The argument joins the idea that we are on the footing of a war economy.

How? ‘Or’ What? Well, wars are expensive. Taking the UK as an example, we can see in this graph, taken from This article on VoxEU.org, that the national debt has increased dramatically in times of conflict (and, of course, financial crisis):

Sometimes this means that sovereigns find themselves unable to meet their financial obligations. The UK, for example, defaulted* on its famous 5% World War I bond, paying off a 3.5% coupon instead.

The government’s response to the pandemic is well on its way to replicating that of a growing battle over the public debt burden. To boot, few now expect a quick and dramatic return to V-shaped growth in the third quarter, with economists now suggesting that quarterly GDP profiles are more likely to look like bathtubs or the Nike swoosh. .

Should we then consider corrective measures, such as the debt restructurings that took place after the Second World War, to revive the economy once the scourge of Covid-19 is rid of? A growing number of mainstream voices are saying yes.

Moreover, this particular conflict comes at a time when central banks are the main holders of public debt in several advanced economies.

The US Federal Reserve held $3.34 billion in US Treasuries as of April 1, making it by far the largest holder of government debt in the world. In the United Kingdom, the Bank of England, an institution created to finance William of Orange’s war with the French, on Friday increased its direct financing of the government by extending the Treasury overdraft facility.

The Bank basically provides a line of credit to governments here. And lines of credit are supposed to be repaid. Just like the coupon and principal of US government bonds held by the Fed. But would central banks, most of which are public institutions, act in the interest of the nation to compel the state to honor its obligations?

The most famous argument for a debt jubilee comes from John Maynard Keynes’s critique of the Treaty of Versailles, the contract designed to settle World War I reparations.

In The Economic Consequences of Peace, Keynes called for a general forgiveness of debts for a war that had strained the finances of Britain and other allies. Most of the debt was owed to the United States which, during the Versailles negotiations, opposed a cancellation of the reparations. Instead, much of the burden was placed on Germany.

The British economist’s argument was that without a debt jubilee, an economic recovery would be impossible and would sow the seeds of the next catastrophe. Over-indebtedness tends to weigh on growth because the money better spent on public spending is spent servicing the debt. A savings paradox can also arise, where the government seeks to save as much as possible, which makes sense for its own balance sheet, but not for an economy left in tatters that requires aggressive state intervention.

Keynes’ view that governments should poach their currencies to fund repayments proved ominously prophetic, as 1920s Germany suffered a period of hyperinflation to fund its reparations:

As inflation rises and the real value of money fluctuates wildly from month to month, all the permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so completely disordered that they have almost no more meaning; and the enrichment process degenerates into a bet and a lottery.

Lessons have been learned. So much so that in 1953 Germany and its creditors, which included governments and banks, signed a spectacular, complex and comprehensive debt relief package. The package paved the way for the Wirtschaftswunder, or economic miracle, of the post-war period. Going through this 2011 article by Adam Tooze of Columbia University:

[The settlement] gave Adenauer’s Germany both a major stake in the emerging international order and the economic muscle to sustain it…

…After 1952, consumer spending fell despite the rising level of economic activity and, for the first time in generations, Germany began to emerge as a great export champion fully capable of meeting its obligations outside…

…Thanks in large part to the decisions of 1952, the immediate result of post-World War II reconstruction was a successful, but narrowly Western European structure built around a conservative West Germany.

However, Tooze told us it’s best not to read too much into the historical parallels here:

It is quite clear that we would have seen a repeat of the odious debt problems of the 1920s without 1953. It was a crucial agreement, but it is so time-limited. Trying to paint this as analogous to the current situation is so tense. It must be judged at the time, the politics of this period were very different from those of today.

We recommend a full read of his 2011 article to better understand how different those times were and how remarkable the German colony truly was.

Those who argue that this time is different for reasons other than politics might also be right.

When Osborne finally settled the debt on the WWI 5% bond in 2014, the UK could borrow at much lower rates, largely thanks to QE. Debt financing costs have remained extremely low since, making interest charges less onerous.

Others worry that, rather than making things easier, reneging on commitments to central banks (as well as other creditors, such as pension funds) threatens to undermine trust in public institutions. This would create a bigger long-term economic headache because it would mean that, with eroded confidence, the state would find it more expensive to borrow from creditors in the future. Via Tom Clougherty, tax manager at the Center for Policy Studies:

Outright monetary financing is a very powerful genie to let out of the bottle. Assuming central banks ultimately want to normalize monetary policy and shrink their balance sheets, they must maintain a properly functioning government debt market.

More importantly, we remain in the eye of the pandemic. It is impossible to assess what the eventual cost of the economic transition measures taken by governments around the world will be. Or what the new normal will look like.

We’d be fairly confident, however, that the bill will be very large indeed. Every piece of economic data we have seen in recent weeks has signaled that we are dealing with an economic catastrophe of Great Depression proportions. Expect calls for sovereign debt cancellation to only grow.

* There is still much debate over whether the UK actually defaulted or not. Some, like Jim Leaviss of Bond Vigilantes, and Carmen Reinhart and Kenneth Rogoff (see page 114), believe it. Others – see the links posted in the comments – think it is better to talk about restructuring.

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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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Africa’s first pandemic default tests new effort to ease China’s debt

A new framework to solve debt crises in developing countries, intended to ensure that Chinese and private creditors share the aid burden, faces a key test after Zambia became the first African country to default during the coronavirus pandemic.

Finance ministers from the Group of 20 major economies said on November 13 that they had finalized a new process to restructure the economy. debts of the poorest countries in the world, who now owes billions of dollars to Chinese public lenders and Western fund managers who bought back their dollar-denominated bonds in the years leading up to the pandemic.

Within this common framework, which G-20 officials hailed as a breakthrough after months of resistance from Beijing, Chinese lenders will participate in debt restructurings alongside rich, mostly Western countries. Private creditors will also be asked to provide relief on similar terms.

This is a big change from previous crises, when Western governments and multilateral lenders such as the World Bank and the International Monetary Fund were the major creditors of developing countries.

Hours after the new debt framework was announced, Zambia, which has borrowed heavily from China, missed a $ 42.5 million interest payment on some of its $ 3 billion denominated bonds in dollars, defaulting one of Africa’s largest copper producers. Zambia has said it needs a break from servicing these obligations to allow it to strike a deal with all of its creditors to bring its debts – now over 100% of gross domestic product – to a sustainable level. and get a bailout from the IMF.

“The framework was designed for the challenges that Zambia is currently facing,” said Eric LeCompte, executive director of Jubilee USA, a non-governmental organization that advocates for debt relief for poor countries.

Zambia has some $ 12 billion in external debt, including $ 3 billion in international bonds and large loans from Chinese public lenders such as the Export-Import Bank of China and the China Development Bank. The government has not said exactly how much it owes Chinese lenders as a whole. Johns Hopkins University’s China-Africa Research Initiative estimates the country has signed some $ 9.7 billion in loans from China, although not all of that money has been withdrawn.

A committee of US and European bondholders who claim to own more than 40% of Zambia’s three dollar-denominated bonds said its members voted against the government’s demand to suspend payments due to lack of transparency on Zambia’s debts and on how the government intends to deal with other creditors, of which China is by far the most important. He also said the government had failed to come up with a credible plan to bring its budget deficits under control.

Mr. Lungu, second from left, and Chinese Ambassador to Zambia Li Jie in a blueberry field in Chongwe, Zambia on November 13.


Photo:

Martin Mbangweta / Xinhua / Zuma Press

“We have no assurance from Zambia that it will treat the same with its other commercial creditors,” said Kevin Daly, investment manager for emerging markets debt at Aberdeen Asset Management and a member of the committee. .

In an interview with Zambian state television on Sunday, Finance Minister Bwalya Ng’andu said confidentiality agreements prevented him from disclosing the terms of the country’s loans to China. But, he said, the government had presented bondholders with its own confidentiality agreement, which, if signed, would allow it to give them more information about its Chinese loans.

Mr Daly said the bondholders refused to sign the deal because the government failed to provide assurances on all their issues, including the equal treatment of creditors.

In September, Zambia said the Development Bank of China had agreed to defer debt payments until April. But Ng’andu said on Sunday that other Chinese lenders were refusing to sign similar deferral agreements as long as the government was still paying bondholders.

“When I pay [the bondholders], the other creditors are going to put dynamite under my legs and blow my legs up. I left and I can no longer walk, ”he said. “If I don’t pay the bonds my legs will remain intact but I will probably get a bullet in my arm, I will bleed from my arm.”

On Monday, the ministry said its largest Chinese lender, China Exim Bank, had agreed to suspend some $ 110 million in interest and principal payments due between May 1 and December 31 of this year.

Responding to questions from the Wall Street Journal, China’s Foreign Ministry said Beijing participated in an earlier G-20 initiative that allows poor countries to suspend debt payments on bilateral loans until mid -2021, and took note of last week’s decision on the new debt crisis resolution framework. He said China is committed to the equal treatment of all creditors in Zambia and elsewhere, but multilateral lenders and private creditors should also shoulder some of the burden.

Zambia’s default follows those of Ecuador and Argentina, which restructured debt this spring as the pandemic and ensuing lockdowns weighed on the global economy and triggered a sharp drop in emerging market bonds. Lebanon defaulted in early March, days before the World Health Organization declared that the rapidly expanding epidemics of the virus had become a global pandemic.

Since then, bond markets have recovered, mainly due to ultra-low interest rates set by Western central banks. But the World Bank and the IMF have warned that other low- and middle-income countries are likely to struggle to repay their debts in years to come.

“We are not out of the woods,” said Kristalina Georgieva, Managing Director of the IMF, after the announcement of the common debt framework. “This crisis is not over.

Write to Gabriele Steinhauser at [email protected] and Joe Wallace at [email protected]

Copyright © 2021 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8

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ANALYSIS: Are the IMF and the World Bank responsible for Africa’s external debt burden?

As the continent weighs in the economic havoc caused by the Covid-19 pandemic, there has been increasing regional calls for debt relief, more recently through African Union President Cyril Ramaphosa on Africa Day on May 25, 2020.

Why many African countries flare up in debt? They can blame international lenders according to Dr Arikana Chihombori-Quao, former AU Ambassador to the United States.

“[The] IMF, World Bank, all the other institutions. They make African countries jump through hoops. Loans that we will never be able to pay, ”she told an American broadcaster. Voice of America in a broad interview in April 2020.

“The United States, when they borrow money, get it at 1.5, 1.9[%] interest rate. Africans, when they get the same amount of money, they pay 9, 10%. People who don’t need a break, they have a break, those who need a break, they don’t have a break ”.

Chihombori-Quao stepped down in October 2019. The AU took the unusual step of deny it had pushed her away because she was too frank.

But does Africa borrow internationally at rates five times higher than other countries? We have examined this claim.

Loan terms based on country income status

Africa Check contacted Chihombori-Quao to get evidence of her claim and ask what other institutions she was talking about. We will update this report with his response.

We asked Dr Charles Adjasi, professor of development finance to Stellenbosch University School of Business in South Africa, on how African countries are borrowing International Monetary Fund and the world Bank.

A country that accesses a typical World Bank loan “will access it based on its income status and the corresponding interest rate,” Adjasi said.

Income status indicates whether the country borrows from two of the banks five units. These are:

Most African countries are only eligible for loans from the IDA, the World Bank told Africa Check. These are low-income countries and “get very concessional financing in the form of loans without subsidies and without interest rates that charge only 0.75% service fees”.

Since April 2020, 68 countries were only eligible for IBRD loans and 14 of these were in Africa. 59 other countries qualified only for IDA loans, including 33 Africans. Of 17 “mixed” countries, which could borrow from both units, six belonged to the region.

Interest rates below 9-10%

The loans currently given by the World Bank and the IMF do not have an interest rate of 9 to 10%, Adjasi told Africa Check. They are anchored to the “Libor”, the London Interbank Offered Rate, a benchmark lending rate largely used in the international bank.

Adjasi told Africa Check that loans from international lenders generally attract an interest rate of Libor plus “+/- 0.5%”.

“The Libor is about 0.4 to 0.9%”, which would give a rate of 0.9 to 1.4%. “So 9 to 10% is definitely too high for the interest rates. This is even higher than lending rates in some developing countries and defeats the purpose of IBRD, IDA or IMF facilities, ”he said.

An IMF spokesperson told Africa Check that it was impossible to know which loans the former ambassador was describing because her comments were in “very general terms”.

However, “the bulk of our loans to low-income countries are set at 0% or on concessional terms”.

The United States cannot borrow from the World Bank

Chihombori-Quao referred to the United States borrowing money at lower rates. But the world Bank and IMF The websites show that the country currently has no loans from either lender. The World Bank spokesman said developed economies like the United States were not eligible to borrow.

Adjasi told Africa Check that a high-income country like the United States is not eligible and technically cannot borrow from the World Bank. However, it can borrow in international capital markets.

Higher interest rates in the 1980s

Until the end of fiscal 2018, IBRD loans to eligible members did not vary based on individual country circumstances, the World Bank said. Members were “subject to the same pricing, regardless of their region of origin and depending on the market conditions prevailing at the time of issuance of the loans.”

The bank said it currently offers a flexible loan, the IBRD flexible loan, which takes into account the financing or debt repayment needs of a country.

Have African countries in the past taken out loans at interest rates of up to 10%?

According to historical data on IBRD loans, a number of countries, including Nigeria, Republic of Congo, Ivory Coast and Zimbabwe has always taken out loans with interest rates of up to 12%, especially in the 1980s.

A rate query on the IMF website shows that adjusted royalty rates, which are drawn on outstanding loans, were 9% or more around 1990.

These rates were in line with prevailing interest rates, as Libor was a factor in interest rates, Adjasi told Africa Check.

“So from this perspective, it’s clear that facilities during times of high Libor will attract higher rates for everyone, including African countries.”

“Graduate”, “reverse graduate” countries between IDA and IBRD

A number of African countries which had progressed or “graduates” from IDA to IBRD are now back in IDA, a process called “reverse graduation”. These are Nigeria, Côte d’Ivoire, Republic of Congo, Cameroon and Zimbabwe. Egypt returned to IDA in 1991, but switched to IBRD again in 1999.

The bank has in the past given a number of reasons why IBRD countries returned to IDA status. These include “sharp swings in commodity prices coupled with exuberant excessive borrowing during the boom years” and “an abundance of commercial bank lending in the 1980s”.

The bank notes that “with hindsight”, there was also “an overly optimistic view of the macroeconomic prospects of many developing countries” leading them to become “over-indebted”.

It is possible that African countries that have reverted to IDA status may still owe IBRD loans, although some that have not paid have benefited from debt relief, Adjasi said.

“The main challenge here is that an unsustainable debt profile, or high debt burden, can revert a middle-income country to low-income status. “

The conclusion that African countries have been singled out has not been substantiated as the IBRD and IDA awards affect all eligible countries, Adjasi said.

“So in the case where the rates are 9-10%, that will apply to everyone. We also have no evidence to suggest that [higher income] Organisation for Economic Co-operation and Development countries receive facilities at lower interest rates.

Countries have “loan portfolios,” says development studies expert

Dr Morten Jerven is professor of development studies to Norwegian University of Life Sciences and wrote books on economic development statistics in Africa.

It is not easy to directly judge whether the assertion of the envoy is correct or not, he told Africa Check.

“The quote is imprecise because it does not claim that IMF and World Bank loans are specifically 9-10%,” Jerven said, echoing the World Bank and IMF.

“Countries have a loan portfolio. It is very possible that one country has one IMF loan at a concessional rate and another at a higher than market rate, ”Jerven said. The same country could also “borrow in private markets, such as Treasury bonds, where rates could be higher again.”

Was a former emissary barking the wrong tree?

Dr. Misheck Mutize, who teaches finance at the University of Cape Town Business School, told Africa Check that it was “unlikely that African countries would be taxed more in a discriminatory manner.” The “claims and statements of the former ambassador have a political context and dimension”.

As loans from multilateral institutions were low and on concessional terms, their interest rates were not the problem, Mutize said. His search for interests including credit ratings, financial markets and African economic policy.

Rather, it was “the conditions that accompany multilateral loans”. He said it could include austerity measures and structural adjustment programs, which include cutting public spending, cutting social assistance and cutting the public wage bill. He also noted the increase in commercial loan rates to contain inflation and currency devaluation.

As loans must be repaid in foreign currencies, their cost increases when local currencies lose value, Mutize said. “This is another huge cost source, and the net cost of devalued currency could be much higher than free market interest rates,” he said. To escape lending requirements, African countries have started borrowing in the Eurobond market, where interest rates differ from country to country due to credit ratings.

“African countries pay more because they have bad credit scores or a high risk of default,” Mutize said.

All these factors therefore make Africa’s indebtedness more complicated than the interest claims made by Chihombori-Quao.

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China’s debt trap speech shows Africa’s weak economic position – Quartz Africa

Along the shores of the Indian Ocean, the Kenyan port of Mombasa is one of the largest and busiest ports in East Africa.

Nearly 1,800 ships moored at the port in 2017 alone, with cargoes worth more than 30 million tonnes handled, much of which was destined for neighboring or landlocked countries, notably Uganda, Rwanda, Burundi and DR Congo . Since its opening in the mid-1890s, the seaport has grown into a booming regional hub and a key cog in Kenya’s growing infrastructure development.

In December, reports surfaced the prized port was used as collateral for the $ 3.2 billion loan that was used to build the 470 kilometer (292 mile) railway line between the seaside town and the capital Nairobi. In a leak report Linked to the Auditor General’s office, Kenya would risk losing its port in the event of default, with Exim Bank of China taking over the port authority’s “escrow account” to recover revenue. Other reports have even noted it goes beyond a single asset it was put as collateral and that possession of “any state” was on the table in the event of non-payment.

The revelations sparked immediate fury and denials triggered Chinese and Kenyan officials. China is currently Kenya largest bilateral creditor, and many have raised questions about the growing risks the East African nation faces as it borrows more money to finance large infrastructure projects.

The outcry also highlighted the issue of “debt trap diplomacy”: a term that has gained popularity in the lexicon of global geopolitics as China exerted its influence around the world. The specter of Beijing extracting economic or political concessions from a country unable to pay its debts was first highlighted in December 2017, when Sri Lanka gave 70% capital and a 99-year lease for its strategic port of Hambantota.

Since then, nations from Djibouti and the Maldives to Laos and Pakistan have been identified as facing risk of over-indebtedness, especially in the face of the multi-billion dollar Belt and Road initiative. Last year, Beijing was also accused of take control Zambia’s national electricity supplier and the reconstruction of the port of Mogadishu in exchange for “exclusive” fishing rights along the Somali coast – allegations that have proven to be inaccurate and that the authorities have refuted.

REUTERS / Joseph Okanga

Mooring at the port of Mombasa.

Western leaders, building on these examples and wary of China’s growing financial and economic power, have warned African states against the exit these loans. Observers also pointed out that Beijing is offering financing with less conditions and Do not be part of of the global multilateral framework for public creditors known as the Paris Club. This raised questions about transparency, sustainability and commercial viability loans financed by the Chinese state, which multiplied by ten over the past five years in Africa.

In the absence of officially published contracts and “predictable written rules” on how Beijing reacts to a default, “people are free to speculate,” said W. Gyude Moore, visiting researcher at the Center for Global Development. Between 2000 and early 2019, there was 85 instances when China canceled or restructured its debt globally, including more recently in Cameroon.

Sri Lanka’s port remains the only place in the world where Beijing has taken control of a state asset, observers noting officials have understood the damage “debt portfolio diplomacy” could cause to the government. China. Yet Beijing’s debt relief or repayment actions, Moore notes, remain “hit and miss. It’s unpredictable. There is nothing written. It’s confusing.”

Growing sinophobia

Chinese loans are not currently a major contributor to the debt burden in Africa; much of it is still due to traditional lenders like the World Bank. Yet Kenyan economist Anzetse Were says the debt trap narrative and anti-Chinese sentiment have intensified because African countries like Kenya have a fundamental problem with budget transparency and because the continent’s past relationship with outside forces, both before and after independence, were one of the “defined by exploitation”.

The general public, she said, remains in the dark about the deals with China. “We don’t know how much we owe; we don’t know the terms.

Yet that should not detract from the efforts of African leaders to burden their nations with unnecessary debt, says Lina Benabdallah, assistant professor of policy at Wake Forest University in North Carolina. “The problem isn’t borrowing money; the problem is managing it and making informed decisions about how to pay it back.

The opacity surrounding the Chinese agreements in Africa – elsewhere those signed with the United States and Europe– also highlights, according to Were, the weakness of Africa’s economic diplomacy and its inability to create institutional frameworks responding to the interests of taxpayers. This is especially crucial in a multipolar world where the scope of interest and engagement in Africa extends beyond China, the EU and the US to include Brazil, Turkey, India, Japan and Gulf states.

And without the ability to negotiate effectively, Were argues that “their agendas will guide our response rather than our agenda meeting them with their best interests and seeing how we can both benefit.”

This is especially true for small countries with weak governments like Somalia, which faces not only technical and resource constraints, but also mechanisms to “ensure compliance, financial probity and oversight,” says Rashid. Abdi, director of the Horn of Africa project at the International Crisis Group.

REUTERS / Thomas Mukoya

New railway line.

Negociation power

Because there is no frame of reference for the Chinese agreements, Moore, who was previously Liberia’s public works minister, says African governments can improve their negotiating capacity by relying on litigation services global. These include the African Legal Support Facility hosted by the African Development Bank or pro bono entities such as the International Senior Lawyer Program. The mobilization of these resources, he adds, could improve the quality of project selection and the process of their implementation.

It will be crucial to become effective in these negotiations as China faces an economic slowdown, growing debt and internal criticism of why it has been. spend taxpayer money abroad, not to mention the external reproach that its presence in Africa akin to neo-colonialism. The state-funded insurance company Sinosure, for example, recently said he lost up to $ 1 billion on the Addis-Djibouti railway.

Moore says this means that the “validity and legitimacy” of Chinese loans will continue to be questioned if they are made in secret, especially if a nation commits to an obligation for two to three decades.

“China doesn’t have to adhere to Paris Club rules,” says Moore. “China can write its own rules and publish them. “

In the meantime, Were says African citizens must advocate for and build technocratic governments that are democratically responsive. This is “probably the biggest challenge for our generation”.

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Somalia Debt Relief, Government Efforts to Combat COVID-19, and Further Boko Haram Attacks

Debt relief in Somalia and other African countries

On Wednesday, the World Bank and the International Monetary Fund (IMF) jointly announced that Somalia is now eligible for debt relief as part of the Heavily Indebted Poor Countries (HIPC) initiative. The success of the HIPC program reduce Somalia’s external debt from the current $ 5.2 billion to $ 557 million in about three years. Somalia will also be eligible to receive new international financing for the first time in 30 years, including access to IMF emergency aid grants to respond to the coronavirus pandemic. Thursday the European Union announced $ 47 million grant to help Somalia clear its debt arrears. A number of Somalia’s bilateral creditors will also meet on March 31 to discuss debt relief, Somali Finance Minister Abdirahman Duale Beileh hoping 75 to 80% debt relief and a multi-year repayment program. Find out more about debt relief and economic adjustments in conflict-affected states, see the October 2019 event where the Brookings Africa Growth Initiative hosted Minister Beileh to discuss his country’s efforts for debt relief.

In related news, the IMF and World Bank jointly called on bilateral creditors to suspend debt payments of 76 poorest countries in the world to enable them to channel additional resources to fight the coronavirus pandemic. At the same time, Ethiopian Prime Minister Abiy Ahmed, in coordination with other African leaders, called on the G-20 to provide $ 150 billion for the continent’s response to the coronavirus. Abiy’s proposal calls for additional funding for African health systems, partial debt relief and support for struggling businesses, among others.

African governments respond to the spread of COVID-19

Like the rest of the world, Africa continues to face the devastating effects of the spread of COVID-19. According to the World Health Organization (WHO), at the time of this writing, the disease is confirmed in 39 countries in the WHO Africa region with over 2,500 cases.

In response, governments have adopted a wide variety of strategies to contain the disease and mitigate its impact on their economies. South Africa, where the the highest number of cases have been confirmed (over 1,100 to date), implemented a 21 days of national confinement from midnight on March 26. In particular, the WHO has adopted a WhatsApp platform by the South African nonprofit Praekelt.org to provide free automated responses with symptom information, travel tips and number updates to its users. The platform had already in use by the country’s health department.

Sunday March 22, Maurice forbids all entry—Including that of foreigners and Mauritian nationals and citizens — in the country for 14 days. That same day, Tunisia announced a 14-day lockdown period, with the exception of persons carrying out certain essential activities. The next day, Uganda has banned all inbound flights. Later in the week it prohibits all public transport. Monday also, Ethiopia closes land borders. Nigeria banned all interstate travel.

From Friday March 27, Kenya implemented a curfew between 7 p.m. and 5 a.m. Senegal, Ivory Coast and Sudan announced similar curfews. Also in Kenya, President Uhuru Kenyatta and Vice President William Ruto announced a 80 percent voluntary pay cut. Kenyatta’s ministers also take cuts between 20 and 30 percent; Kenya’s parliament will also take 30 percent over the next three months. The The Kenyan government has also offered tax relief for the general population: 100% for those earning less than $ 240 per month, and an income tax cut of 5% for everyone else. Interestingly, an aversion to fish imports from China caused the The booming Kenyan fishing sub-sector.

In the positive news, Senegal announced that researchers at its Institut Pasteur have started validation trials on a $ 1, home COVID-19 diagnostic test which can produce results in as little as 10 minutes. In Cameroon, one of the rebel groups, the Southern Cameroons Defense Forces (Socadef), has temporarily called for a ceasefire in its efforts to break away from largely French-speaking Cameroon and create an English-speaking state, although others groups continue to fight.

On Thursday, the African Development Bank also sold $ 3 billion in three years “Fighting COVID-19 Social Obligations”. In the meantime, the African Import-Export Bank announced the creation of a $ 3 billion credit facility to help African countries fight the effects of the pandemic.

You can find more Brookings comments on the COVID-19 pandemic here.

Nigeria and Chad affected by terrorist attacks by Boko Haram

Two attacks from jihadist groups Boko Haram and the Islamic State in the province of West Africa (ISWAP) – a Boko Haram splinter group – killed more than 140 soldiers this week in Chad and Nigeria. In Chad, 92 soldiers were killed by Boko Haram on Sunday March 22 in the Boma peninsula near Lake Chad. The attack was the Boko Haram’s deadliest attack on the Chadian military forces. In Nigeria, 50 soldiers were killed by ISWAP in an ambush in eastern Borno state on March 23. The attack occurred after an attempted offensive against ISWAP by the Nigerian military which started this weekend.

Boko Haram was active in northeast Nigeria since 2009, and over the past decade, with ISWAP, has also spread to neighboring Cameroon, Chad and Niger. According to the United Nations, approximately 36,000 people were killed and nearly 2 million displaced in northeastern Nigeria since the start of the Boko Haram insurgency. Despite regional efforts to defeat jihadist groups, the attacks have multiplied in recent months.

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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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Religious leaders urge Biden to support global coronavirus aid and debt relief

Two religious leaders, including the chairman of a U.S. episcopal committee, have urged the Biden administration to support the release of $ 3 trillion in global contingency funds to help developing countries respond to the coronavirus pandemic.

Writing on February 23 at the White House, the leaders also called on the Group of 20 nations, or G-20, and private groups to cancel all debts and increase aid to the poorest developing countries, to put end to tax evasion and create permanent global bankruptcy. process aimed at preventing future economic crises.

“The letter presents a roadmap on how to address the structures that cause poverty, inequality and the challenges we now face in this great economic crisis,” said Eric LeCompte, executive director of Jubilee USA, an alliance of faith-based development. and the advocacy groups that led the effort.

Bishop David J. Malloy of Rockford, Illinois, chairman of the American Bishops Committee on International Justice and Peace, also signed the letter.

The letter was sent ahead of the virtual meeting of G-20 finance ministers on February 26, where actions to deal with the economic impact of the pandemic will be discussed. US Treasury Secretary Janet Yellen will attend the meeting.

The letter to Biden comes after the president attended the virtual summit of the Group of 7 or the G-7 of major industrialized countries on February 19, in which he pledged that the United States would return to a multilateral approach to address the issues. World challenges.

Debt cancellation would allow developing countries to better cope with the impact of the pandemic, LeCompte told Catholic News Service on February 24.

“These are the solutions that Pope Francis has asked for,” he said. “He has been beating a drum ever since he arrived in the United States in 2015 and gave his speech at the United Nations. It was there that he explained that the financial system must be transformed. . “

As the pandemic began in February 2020, the Pope quickly called for immediate debt cancellation.

While the G-20 countries agreed at the start of the pandemic last spring to suspend payments of debt owed to them by 77 of the world’s poorest countries, further action is needed, LeCompte said.

The letter cited the International Labor Organization’s estimate that 495 million jobs were lost globally in 2020 and a World Bank estimate that up to 150 million people will fall into extreme poverty in 2021 in support of his claims to Biden.

The letter echoes similar demands made to G-20 countries in a February 23 statement from Brussels-based CIDSE, a network of 17 Catholic development agencies from Europe and North America.

“Given the effects of the pandemic in developing countries, the US government must lead the world to access emergency reserve funds,” known as Special Drawing Rights, or SDRs, according to the letter. “These generated funds were crucial in helping economies survive the 2008 financial crisis.”

The two leaders urged the administration to lead a response with the G-20, the International Monetary Fund and the US Congress to generate a $ 3 trillion SDR issue for developing countries.

Legislation was introduced in the House of Representatives to extend the authority to issue SDRs from $ 695 million to $ 3 trillion. LeCompte said he hoped Congress as a whole would pass the measure.

The G-20 includes the European Union, Argentina, Australia, Brazil, Great Britain, Canada, China, France, Germany, India, Indonesia, Italy , Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey and the United States. States.

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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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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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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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Joint Statement by the World Bank Group and the IMF Call to Action on IDA Country Debt

Joint Statement by the World Bank Group and the IMF Call to Action on IDA Country Debt

March 25, 2020

Washington DC The World Bank Group and the International Monetary Fund issued the following joint statement to the G20 on debt relief for the poorest countries:

The coronavirus epidemic is likely to have serious economic and social consequences for

IDA Country
, which is home to a quarter of the world’s population and two-thirds of the world’s population living in extreme poverty.

With immediate effect and in accordance with the national laws of creditor countries, the World Bank Group and the International Monetary Fund call on all official bilateral creditors to suspend debt payments from IDA countries that request forbearance. This will help meet the immediate liquidity needs of IDA countries to meet the challenges posed by the coronavirus epidemic and will allow time for an assessment of the impact of the crisis and the financing needs for each country.

We call on G20 leaders to task the WBG and IMF with carrying out these assessments, including identifying countries with unsustainable debt, and preparing a proposal for comprehensive action by official bilateral creditors to meet the needs of financing and debt relief for IDA countries. We will seek the approval of the proposal at the development committee during the spring meetings (April 16 and 17).

The World Bank Group and the IMF believe it is imperative at this time to provide a sense of global relief to developing countries as well as a strong signal to financial markets. The international community would welcome the G20’s support for this call to action.

IMF Communications Department
MEDIA RELATIONS

PRESS OFFICER: Wafa Amr

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

@ IMFSpeaker


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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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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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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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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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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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Coronavirus and debt: a toxic mix

The spread of the coronavirus is likely to tip 2020 global economic growth below the OECD’s baseline estimate of 2.4% (already below the 2.5% threshold marking a global recession) towards its most pessimistic estimate of 1.5%.

This disease-induced shock on supply and demand could not have come at a worse time for an indebted global economy: $ 72.7 billion (92.5% of global gross domestic product) for sovereign borrowers and $ 69.3 billion (88.3% of GDP) for borrowers from non-financial businesses, according to the Institute of International Finance. Many highly indebted sovereign and private borrowers will be in difficulty.

The obvious victims are countries already in debt crises before Covid-19 hit. Besides Venezuela and Argentina, Lebanon has just defaulted on its maturing $ 1.2 billion Eurobond and is seeking to restructure all of its $ 31.3 billion Eurobonds. With around $ 90 billion in public debt, or 155% of GDP, the crisis-stricken country is going through its own version of the sovereign / bank loop – domestic banks hold most of its public debt.

Sub-Saharan African countries are also hard hit, nearly half of which are over-indebted according to the IMF and the World Bank.

Zimbabwe is going through an economic and humanitarian crisis, with a painful economic contraction last year. Half of its population is believed to be food insecure, while the newly introduced Zimbabwe dollar has lost most of its value due to triple-digit inflation. Arrears to external creditors represent over 30 percent of GDP.

Zambia is also struggling, with a record external debt of $ 11.2 billion at the end of 2019. The country continues to run a budget deficit of minus 9% of GDP on a commitment basis, making it difficult working with the IMF to restore debt sustainability. .

After posting a record debt-to-GDP ratio of 118% in 2017, the Republic of Congo obtained IMF financing of $ 449 million last July after being able to extend the maturity (without a principal discount) on its debt by 2 , 5 billion dollars to China. – show a way to tackle loans from China to sub-Saharan African countries.

Mozambique’s restructuring deal with 60 percent of its Eurobond holders remains mired in litigation. Angola’s public debt reached 102 percent of GDP. South Africa was in recession in the second half of 2019 – severe fiscal deterioration will soon bring public debt to 70% of GDP.

Currently, only Somalia, Sudan and Eritrea remain in the pre-decision point phase of the Heavily Indebted Poor Countries (HIPC) Debt Relief Program; perhaps more should be added.

The elephant in the room in terms of sovereign debt risk, however, is Italy. Parts of the country in confinement represent 40 percent of its GDP; the economic disruption will likely push Italy into its fourth recession since the global financial crisis, bringing the 2020 budget deficit above the budgeted 2.2% of GDP and public debt beyond $ 2.5 billion, or 135% of GDP. Low interest rates can help for now, but zero growth combined with high and growing debt is not sustainable. While the likelihood of an Italian sovereign debt crisis is still low, it is not negligible and is increasing, representing a high impact risk for the global economy and an existential threat for the euro area.

With expected corporate earnings growth this year reduced to zero or negative for many mature and emerging market economies, corporate borrowers with low Interest Coverage Ratios (ICRs) will be under increasing pressure. A recent study by the US Federal Reserve estimates that for US companies, the average ICR is rather low at 3.7 and the percentage of debt at risk (with ICR

South Korea deserves special attention: in addition to being hard hit by Covid-19, it has a high corporate debt-to-GDP ratio of 101.6% – and a high household debt ratio of 95%.

China has the world’s highest corporate debt-to-GDP ratio at 156.7 percent. Most of the debt is domestic. However, it has many state-owned assets, including foreign exchange reserves of $ 3.1 billion and a relatively low level of public debt, at 54% of GDP. China can use its sovereign balance sheet to absorb corporate debt losses if necessary.

Beijing will likely continue to steer state-owned banks towards permanent loans to state-owned enterprises and state-owned asset management companies to perform debt-for-stock swaps, allowing a controllable number of demonstrative bankruptcies. . In other words, while the Chinese corporate debt problem is serious, its potential losses and impact will extend far into the future – debt resolution with Chinese characteristics!

In short, expect to see more cases of sovereign and corporate debt overhang in the coming months. While many distressed borrowers are individually small and non-systemic, if enough of them default at the same time, it would shock global financial stability. That is to say until Italy goes into debt!

Hung Tran is a Non-Resident Principal Researcher at the Atlantic Council and a former Executive Director General of the Institute of International Finance.

Beyondbrics is an emerging markets forum for contributors from business, finance, politics, academia and the third sector. All opinions expressed are those of the authors and should not be taken to reflect the opinions of the Financial Times.

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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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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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Somalia’s giant economic progress secures $ 1.4 billion debt cancellation

The Paris Club of creditor countries agreed to restructure Somalia’s external public debt with immediate cancellation of US $ 1.4 billion.

Somalia has pushed for the cancellation of its inflated debt, some of which dates back more than four decades, when the country was battling the Siad Barre regime, which was toppled in 1991.

The deal between Somalia and the Paris Club creditor countries was reached on Tuesday evening under “Cologne terms”, as part of an initiative to provide interim debt relief to heavily indebted poor countries.

Somali Finance Minister Abdirahman Beileh hailed the debt cancellation and pledged to continue economic reforms to help rebuild the country.

Ultimately, debt relief will help Somalia reduce its external debt to $ 557 million in net present value, from $ 5.2 billion at the end of 2018, the IMF and the World Bank said.

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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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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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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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A good but incomplete start to debt relief

A good but incomplete start to debt relief

Paola Subacchi( https://garyshood.com/payday-loan-online/ )

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( https://garyshood.com/payday-loan-online/ ), 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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Kenya avoids debt reorganization in common G20 framework

(add details)

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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