To Overcome COVID-19, the G20 Must Solve Today’s Debt Crisis Faced by the Poorest Nations
By Chema Vera, Executive Director (interim), Oxfam International
People turned away at the gates of hospitals, unable to afford life-saving treatment.
Girls struggling to go back to school.
Hundreds of millions of people being pushed into poverty.
The blast-range of today’s pandemic has been so much more terrifying than what we could have imagined.
This week the Finance Ministers of the richest countries in the world — the G20 countries — will meet for an extraordinary meeting focused on what the pandemic has pushed to the top of the global political agenda: the debt crisis in the world’s poorest countries.
Nurses and doctors, ICU beds and ventilators, assistance for the newly unemployed all need paying for. But poor governments’ coffers were already empty, and drowning in servicing public external debt. According to the Jubilee Debt Campaign, 64 countries, including Kenya, Pakistan and Zambia were already spending more on debt repayments than healthcare before the pandemic hit.
The international community, initially, acted. A month after the pandemic was declared the G20 launched the Debt Service Suspension Initiative — the “DSSI” — which in its initial terms, would allow debt suspension for up to 73 of the poorest countries in the world. Multilateralism prevailed.
But the DSSI barely scratches the surface. As a suspension rather than a cancelation, it just kicked repayments down the road. And it’s offer only applied to bilateral debt, from one government to another. Private creditors such as big banks and investment funds were only asked, somewhat politely, to voluntarily comply.
Unsurprisingly not one bank has done so.
The result is a deal that offers to relieve less than a third — $12bn of the $42bn — of the 2020 debt repayments that 73 eligible countries are due to make. Moreover, countries are having to use that relief to pay off big banks and investment funds — rather than use funds for urgent healthcare needs.
The reality is yet bleaker. Only 46 countries of the 73 eligible countries applied for the DSSI, receiving $5.3bn in temporary debt suspension — or 24% of their payments due in 2020. Many other eligible countries have judged that the DSSI could harm their chances for refinancing or future borrowing from private creditors by damaging their credit rating.
Meanwhile, the World Bank continues to refuse to offer any form of debt relief, while it continues to collect $3.7 billion in debt payments in 2020 from the world’s poorest countries. This is a strange position to take given the attention the Bank has given the debt crisis as well as its warnings of deepening poverty.
The G20 this week has a chance to rectify this.
They will discuss a “common framework” for debt restructuring beyond the DSSI for countries that have unsustainable levels of debt. Good. They have indicated that indebted countries will still have to request relief on a case-by-case basis from all creditors — including private creditors. While welcome, such a piecemeal approach delays the urgent need for immediate relief, at a time in which cuts to social spending are being made.
Meanwhile the DSSI has only been extended by six-months, with an additional extension possible to the end of 2021. This is a positive step, but disappointingly short-sighted. The International Monetary Fund (IMF) already expects today’s economic crisis to run into 2022 and 2023. In a few months more people could be dying from hunger each day as a result of the pandemic, than from the disease itself.
The demand of leaders of African nations for more ambitious debt measures is clear. They are joined by over four hundred civil society networks, CSOs and social movements, and leading economists including Joseph Stiglitz and Lawrence Summers.
Now a group of leading doctors around the world is together calling for debt relief so that hospitals, doctors and nurses can be funded instead.
A truly legally-binding initiative that stops the hemorrhage of life-saving revenues is what we yet need. The G20 would be wise to move from debt suspension to debt cancellation — casting the net to the end of 2022 which is when most countries expect to see a return to pre-pandemic GDP levels.
The G20’s proposed common framework can be a positive step towards that. Crucially it must include bilateral, private and multilateral creditors — rich banks in New York and London, and the World Bank included — on equal terms as part of a binding collective initiative. The G20 should also cancel the debts of middle-income nations, where the majority of the world’s poorest live, and which are increasingly suffering debt crises.
And debtors’ countries voices — alongside civil society — should be able to shape the framework. That’s how it will better serve the people it seeks to help.
Moreover, a truly effective common framework would help prevent crises from happening in the first place, and trigger restructuring early on. Zambia, which sought debt restructuring on October 14th and was told “no” by private creditors, risks defaulting on a payment deadline this week. Tens of countries may face a similar fate in months ahead. The IMF states that early restructuring is more effective.
Rich countries and companies must stop cashing in on debt payments from poor countries as millions struggle to survive. Consider how rich countries have unleashed unprecedented financial firepower at home, with over $8 trillion of new cash to protect their people and economies. That puts into perspective the at-best $12 billion they have availed in relief in 2020 to poor countries abroad.
The leaders of the world’s rich nations may have, so far, failed to rise to the challenge of the greatest global crisis in a generation.
But this week they have a chance to start changing that.
