Humanitarian and economic leaders cautioned on Thursday that a move by the world’s richest countries to give the poorest ones more time to pay off their debts will not be enough to alleviate massive suffering.
The temporary debt relief provided by the Group of 20 major economies reflects the globally devastating economic fallout of the coronavirus pandemic.
“Good first step by G-20, but too small and slow to stave off crisis we are seeing in refugee communities,” tweeted Jan Egeland, secretary general of the Norwegian Refugee Council and a veteran diplomat who has held numerous high-level United Nations positions.
“G-20 leaders must commit to full debt relief, massive aid to crisis-hit people,” he said, “and ensure the world’s vulnerable benefit from economic recovery plans.”
Joseph Stiglitz, a Nobel Prize-winning American economist and Columbia University professor who is chief economist at the Roosevelt Institute think tank, noted the G-20 has some self-interest in helping poorer nations that are being pushed into austerity and crisis.
“The G-20 promised to use all instruments but has only used one, debt deferral, that is just a stay of execution for developing countries,” Stiglitz, a former senior vice president and chief economist of the World Bank, told Boston University’s Global Development Policy Center. “And a developing world depression will hurt ‘even’ developed countries.”
On Wednesday, G-20 finance ministers and central bank governors agreed to suspend for another six months the debt payments coming due from developing nations. They previously agreed in April to a six-month suspension of US$12 billion in debt payments for more than 70 poor and mostly African nations.
The G-20 said it will extend a program known as the Debt Service Suspension Initiative, or DSSI, that had been called for by the World Bank and International Monetary Fund. The repayment period is 5 years, with an additional one-year grace period.
World Bank President David Malpass also urged the G-20 to do more than suspend debt payments, saying “a long-term solution to the debt crisis is needed — we can no longer kick the can down the road.”
The Group of 20 is a forum of the world’s biggest economies for developing global policies on the most pressing challenges. It includes 19 countries, plus the European Union. Together they represent 80 percent of global economic output.
The members are: Argentina, Australia, Brazil, Britain, Canada, China, the E.U., France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey and the United States.
Addressing the debt overhang facing the poorest countries is key to recovery.
The scale of the challenges ahead is staggering, but I have confidence that sustainable solutions will emerge through constructive change.
Read my full remarks here: https://t.co/bC8ZkqlG9A
— David Malpass (@DavidMalpassWBG) October 14, 2020
‘Significant debt vulnerabilities and deteriorating outlook’
The G-20 said the six-month extension provides relief for US$14 billion in debt payments this year. Developing nations that participate can put off servicing their debts until June 2021, so they can spend more money on health care and stimulus programs.
“In light of the continued liquidity pressure, while progressively addressing debt vulnerabilities, we agreed to extend the DSSI by six months,” the G-20 said in a 10-page communiqué after Wednesday’s virtual meetings hosted by Saudi Arabia. “All official bilateral creditors should implement this initiative fully and in a transparent manner.”
Finance ministers and central bank governors also agreed to consider an additional six-month extension when they hold World Bank and IMF meetings scheduled in spring 2021.
Even the G-20 leaders seemed to acknowledge that the temporary relief they provided falls short of the measures some experts and humanitarian groups believe are needed to feed, clothe and care for hundreds of millions of people hit hard by the COVID-19 pandemic.
“We remain committed to continue working together to support the poorest countries as they address health, social and economic challenges associated with the COVID-19 pandemic,” G-20 leaders said in the communiqué.
“Given the scale of the COVID-19 crisis,” they said, “the significant debt vulnerabilities and deteriorating outlook in many low-income countries, we recognize that debt treatments beyond the DSSI may be required on a case-by-case basis.”
In July, four anti-poverty international organizations — Oxfam International, Christian Aid, Global Justice Now and Jubilee Debt Campaign — prominently called on the G-20 to cancel the debts of developing nations to help boost public health and stimulus spending.
The World Food Program, which won the Nobel Peace Prize last week, has estimated that almost 690 million people suffer from hunger and extreme poverty around the world. The World Bank has said the pandemic forced another 88 million to 114 million people into extreme poverty, which is defined as living on less than US$1.90 a day.
That will mark 2020 as the first step backwards in what has otherwise been two decades of progress in helping lift millions of people out of poverty.
Under the DSSI, more than 70 countries were eligible and 44 are participating, potentially saving them $11.5 billion this year, according to the World Bank’s latest figures.
But the four organizations said their research shows all of the more than 70 countries would still owe nearly $34 billion in debt repayments this year, or $2.8 billion a month — double the amount Malawi, Uganda and Zambia collectively spend on health each year.
The debt repayments stem from $13.8 billion owed to multilateral institutions, $11.6 billion to private creditors and $3.77 billion to the World Bank. As a result, the four organizations want the G-20 to agree to make DSSI legally binding through 2022.