Debt crisis: what next as the IMF and G20 initiatives expire?
The coming months will see the end of two of the main multilateral debt relief mechanisms: the G20 Debt Service Suspension Initiative (DSSI), which expires in December 2021, and the IMF Confidence in containment and disaster relief (CCRT), which will expire on January 10, 2022 – although the IMF is considering its possible extension for “a final tranche of debt relief” until April 13, 2022, “subject to the availability of sufficient resources within the CCRT”.
The DSSI and the CCRT support countries facing debt repayment problems in different ways. The DSSI suspends the payment of the bilateral public debt towards the G20 countries. Countries get a break on their debt payments, but still owe the same amount they will have to pay later. The CCRT provides countries with grants to help them repay their debt to the IMF in particular.
The DSSI, created in April 2020, was critical for not having met expectations. One october to study by a UK-based civil society organization (CSO), Jubilee Debt Campaign (JDC) found that only a quarter of the $ 35 billion in debt suspension announced by the G20 had been honored. Meanwhile, private lenders received $ 14.9 billion, while suspending just 0.2 percent of payments.
Countries facing economic difficulties will resume debt payments to bilateral creditors in 2022 and continue to repay private creditors who have escaped liabilityNadia Daar, Oxfam International
CCRT granted $ 850.7 million in debt service relief to 29 eligible countries in four installments, IMF latest report says update, leaving aside most of Latin America where only Haiti has received such aid. Nadia Daar of Oxfam International said that the CCRT “was about the only mechanism that actually ‘canceled’ some debt payments for some countries. However, its size and reach was very limited… and in the end, the IMF also benefited from this program, as CCRT grants can only be used to repay the IMF.
G20 looks to deeply flawed common framework
The impending end of the DSSI and the CCRT means that there will be only one active multilateral debt support mechanism, the G20 Common Framework for Debt Treatment (see Mail Annuals 2020). On paper, this framework was created to deal with the more complex issue of restructuring and reducing the debt burden. However, a item by the Atlantic Council, a US-based think tank, called it a “dismal failure”, noting that “three countries – Chad, Ethiopia and Zambia – have called for debt relief through the program, but little progress has been made. “In most cases, creditors were simply encouraged to change the terms of payment, which JDC pointed out as” similar to the current suspension regime “, adding:” This mainly jeopardizes the road, creating a future problem. debt “(see Observer winter 2020). A recent to study by the UNDP identified 72 countries with a high degree of debt vulnerability, of which 23, holding about 65% of the total debt service at risk, are not eligible for the Common Framework or the DSSI.
At this year’s IMF and World Bank annual meetings, the communicated stressed their faith in the Common Framework, which is worrying, given its ineffectiveness so far. The statement barely mentioned the need for the private sector to engage in debt cancellation, limiting itself to supporting “early engagement of borrowing countries and private creditors within the common framework”.
Acknowledging some of these concerns, in a recent Blog, Kristalina Georgieva, Managing Director of the IMF and Ceyla Pazarbasioglu, Director of the Strategy, Policy and Review Department, said: “With the policy space tightening for the highly indebted countries, the [Common Framework] can and must deliver faster ”, adding that“ it is also essential that private sector creditors implement debt relief on comparable terms ”.
CSOs are requiring that private creditors “cancel the debt of low- and middle-income countries that so request to help them respond to and recover from the pandemic, and fully play their role in international processes, including the common framework of G20, granting requests for debt relief through this process ”(see Mail Annuals 2021).
Daar stressed: “The situation is extremely serious with the pandemic continuing to rage and the persistent inequalities in vaccines. Countries facing economic difficulties will resume paying debt to bilateral creditors in 2022 and will continue to repay private creditors who have escaped responsibility and are likely to be forced into severe austerity in the years to come. “