Global Citizen has teamed up with the International Chamber of Commerce (ICC) and the International Trade Union Confederation (ITUC) to publish an open letter urging the world’s richest countries to take greater action to relieve sovereign debt for poor nations.
Sovereign debt is essentially credit — usually in the form of bonds or syndicated loans — owed by a government to its creditors. As countries globally struggle to cope with the COVID-19 pandemic, many of those hit hardest by the pandemic will also suffer a debt crisis, according to the World Bank.
For people living in poor countries, debt service suspension for those countries is a “powerful, fast-acting measure,” the World Bank said, and enables countries to use their financial resources instead in responding to the pandemic.
The open letter, on behalf of business, workers, and civil society globally, is addressed to the Group of 20 (G20) — the world’s major economies. It calls on the finance ministers of these countries to build on previous efforts to deliver a truly comprehensive sovereign debt package.
It comes ahead of an online meeting of G20 finance ministers — the G20 Finance Ministers and Central Bank Governors meeting — to be held later this week, on July 18.
The letter follows a previous joint letter sent in April, which called on G20 governments to take international debt out of the equation in the fight against COVID-19, ahead of the Spring Meetings of the World Bank Group (WBG) and the International Monetary Fund (IMF).
We have already seen some success. In April, the G20 and the Paris Club of creditors — an informal group of creditor nations, with the objective of finding workable solutions to debt payment problems faced by debtor nations — announced a freeze in debt service payments for the world’s 73 poorest countries, through to the end of 2020.
This initiative, the Debt Service Suspension Initiative (DSSI), was a step in the right direction, and one that the World Bank said “will do much to safeguard the lives and livelihoods of millions of the most vulnerable people.”
But with the global economy facing an even deeper downturn than projected in April, the second letter stresses that more steps are still needed, including an extension of the DSSI through to the end of April 2022.
The letter applauded “the commitment made by several governments to replenish the IMF Catastrophe Containment and Relief Trust (CCRT), and Poverty Reduction and Growth Trust.”
“For the real economy and society at large, this package of measures was a welcome signal of the G20’s overarching commitment to eliminate any risk of disorderly sovereign debt crises compounding the human and economic toll of COVID-19,” it added.
So far, according to Reuters, 41 countries have applied for relief from debt servicing under the G20 DSSI, and the Paris Club has signed agreements with 20 countries, including Côte D’Ivoire, Ethiopia, and Pakistan.
But the letter this week highlighted that it is “increasingly clear” that further leadership is “urgently required to decisively deliver on this imperative.”
It urged that “decisive and comprehensive action is now needed to ensure that debt service does not prevent development governments from protecting the lives and livelihoods of their citizens in the face of the pandemic.”
Of particular concern is the growing number of countries already facing or at risk of debt distress — including many countries, not currently within the scope of the DSSI, whose economies have been highly exposed to the external shocks caused by COVID-19.
“In this context, we are writing ... to urge you to forge a new package of debt relief measures commensurate in scale and scope to the gravity of the COVID-19 crisis,” the letter continued. “Any such plan should be bold enough to address barriers that sovereign debt burdens present toward pandemic containment — while enabling a global recovery that prioritises health resiliency, decent work, and growth of the economy.”
“Removing the spectre of sovereign debt from pandemic containment and the economic crisis is an absolute imperative to business, workers, and citizens throughout the world,” the letter highlighted. “The required investment from the world’s leading economies is minute compared to the social and economic costs of inaction.”
Among other recommendations, the letter is calling for the world’s major economies to boost contributions that will enable the IMF to keep providing debt service relief for the poorest countries until the end of April 2022, as well as broadening the scope of the DSSI to include lower-middle and middle-income countries based on their debt and health vulnerabilities.
The recommendations were developed through extensive consultations with a wide range of market participants and sovereign debt experts.
Specifically, the letter urged the finance ministers to:
- Extend the suspension of debt payments to April 30, 2022, commensurate with the anticipated economic uncertainty and scarring caused by the pandemic;
- Broaden the scope of the DSSI to encompass lower-middle and middle-income countries, based on their health and debt vulnerabilities;
- Replenish the IMF CCRT, to cover all Poverty Reduction and Growth Trust loan repayments through April 2022;
- Create and fund mechanisms at the Multilateral Development Banks modelled on the IMF CCRT, covering — at a minimum — repayments owed by IDA and IDA-blend countries through April 2022;
- Establish new institutional mechanisms to enable full participation from private and bilateral creditors in the provision of debt forbearance in accordance with any expansion to the DSSI;
- Clarify the expectation that private creditors will participate collectively on comparable terms with official creditors;
- Address any potential barriers to the full participation of private creditors in DSSI by providing coordinated clarification on the implementation of applicable regulatory frameworks.
You can join the movement to support the world’s poorest countries in tackling COVID-19, and to help ensure that COVID-19 tests, treatments, and vaccines reach everyone, everywhere, by taking action here.