Major international creditors will suspend debt payments this year for the world’s poorest countries, who will be hit hardest by the rapidly spreading coronavirus pandemic that has sparked the steepest downturn in the global economy since the 1930s.
French Finance Minister Bruno Le Maire said 76 countries, including 40 in sub-Saharan Africa, would be eligible to have debt payments worth a combined $20bn suspended by official and private creditors. A remaining $12bn in payments due to multilateral institutions still need to be sorted out.
“We have obtained a debt moratorium at the level of bilateral creditors and private creditors for a total of $20bn,” Le Maire told journalists.
Group of Seven (G7) finance ministers and central bank governors met by videoconference on Tuesday. They threw their support behind a push to provide temporary debt relief to the poorest countries.
The group is ready to provide “a time-bound suspension on debt service payments due on official bilateral claims for all countries eligible for World Bank concessional financing,” according to a joint statement. Their offer, however, is contingent on China and other countries in the Group of 20 (G20) major economies joining them, as agreed with the Paris Club group of creditors.
G20 deputies will meet on Tuesday to prepare for a broader meeting of finance ministers and central bank governors on Wednesday. Sources familiar with the process told Reuters they expected the G20 to endorse a suspension of debt payments at least until the end of the year.
World Bank President David Malpass, in a tweet, thanked US Treasury Secretary Steven Mnuchin for hosting the G7 meeting and backing his joint call with International Monetary Fund Managing Director Kristalina Georgieva for the temporary debt standstill.
The World Bank and the IMF have begun disbursing emergency aid to countries struggling to contain the spread of the novel coronavirus and mitigate its economic impact. They first issued their call for debt relief on March 25, but China – a major creditor – and other G20 nations have not formally endorsed the proposal.
The IMF, in its 2020 World Economic Outlook, said on Tuesday that the global economy is expected to shrink by three percent during 2020 in a stunning coronavirus-driven collapse of activity that will mark the steepest downturn since the Great Depression of the 1930s.
The forecast provided a sombre backdrop to the IMF and World Bank spring meetings, which are being held by videoconference this week because of the pandemic. The meetings, which normally draw 10,000 people to Washington, DC in the United States, have been stripped to the bare minimum, with many interactions among central bankers, finance ministers, and other policymakers not taking place.
The pandemic will hit the poorest countries, especially hard since they lack adequate healthcare systems and have already seen massive capital flight out of their economies. Many have also been rocked by plunging commodity prices.
France’s Le Maire said official government creditors, including not only the Paris Club but also China and other members of the G20, were to suspend $12bn under the agreement, which still needs to be finalised on Wednesday.
Separately, a senior German official spoke of a debt moratorium by official creditors worth up to $14bn, a number is previously given by Malpass.
In their statement, G7 officials also called for more contributions to the IMF’s facilities that support the poorest countries and said the debt relief effort should include private creditors on a voluntary basis, as well as efforts to enhance debt transparency.
China has become a major creditor to developing countries, especially in Africa, but there is little transparency about how much they owe.
A French finance ministry official said private creditors have agreed on a voluntary basis to roll over or refinance $8bn in debt.
Of the total $32bn due this year, the remaining $12bn is owed by multilateral lenders, mainly the World Bank, Le Maire said, urging such lenders to join the debt relief initiative.
The IMF on Monday announced $215m in initial debt relief grants to 25 countries, drawing on its Catastrophe Containment and Relief Trust. That facility currently has about $500m available, but the IMF is trying to boost it to $1.4bn.
There are growing calls from nonprofit groups, Pope Francis and others to follow up on the temporary suspension of debt payments with a cancellation of debts for the poorest countries.
French President Emmanuel Macron said in a television address to the French nation on Monday that African countries should be helped by “massively cancelling their debt”, but gave no details.
Le Maire said that at the end of the year, outright debt cancellation should take place on a case-by-case basis and in coordination with multilateral lenders depending on the economic situation of the countries as well as developments in commodity markets and capital flows.