A high-profile meeting of several heads of state and government, the United Nations, and heads of multilateral development finance institutions has called for the expansion of the debt service suspension initiative.
The debt service suspension initiative required low-income countries to suspend the payment of debt during the Covid-19 pandemic. When instituted, it was to allow countries to concentrate their resources on fighting the pandemic and protecting the lives and livelihoods of citizens.
Panelists at the meeting urged for the initiative to be broadened beyond low-income countries. Also, panelists pushed for the current expiration of same, extended to offer much-needed fiscal space among countries. The meeting also called for the Special Drawing Rights (SDRs) to be reallocated to poorer countries.
Prime Minister Justin Trudeau of Canada, Prime Minister Holness of Jamaica and UN Secretary-General Antonio Guterres convened the virtual meeting.
In attendance were African Development Bank Group president Akinwumi A. Adesina, IMF’s Managing Director Kristalina Georgieva; World Bank’s President David Malpass; OECD Secretary-General Angel Gurria; World Trade Organization Director-General Ngozi Okonjo-Iweala; Inter-American Development Bank President Mauricio Claver-Carone.
Snapshot of Discussions at the meeting
Antonio Guterres noted that debt distress among countries risk the achievement of the Sustainable Development Goals. He commended the ongoing efforts to widen debt relief and improve access to special drawing rights but urged more.
Furthermore, he called for a new debt mechanism that could provide variety of options including debt swaps, buybacks and cancellations. He further added that this was the time to handle prolonged weaknesses in debt architecture.
Prime Minister Holness warned about the severe cost at which countries have had to service debts. He indicated that populations have had to bear the huge brunt of these costs, which have led to high costs in public expenditures. Nonetheless, he praised the G20’s decision to extend the debt suspension initiative.
“I believe there is a sound basis for it to be further extended to next year. Consideration should also be given to expanding its beneficiaries to include highly-indebted middle-income countries.”
Andrew Holness, Prime Minister of Jamaica
Other notable contributions
Kristalina Georgieva of the IMF pointed out that to ensure the recovery of economies; there is need for a comprehensive approach to increase fiscal space for poor nations. For this to happen measures must include revenue collection, spending efficiency, greater international support, as well as grants and concessional lending.
Also, she indicated the IMF had brought finality to its proposal to allocate additional special drawing rights to member countries, amounting to $650 billion. This is to help member countries with strong economic fundamentals to transfer reserves to low-income and vulnerable countries.
AfDB’s President, Akinwumi Adesina hinted that Africa’s anticipated recovery hinges on securing equitable access to vaccines and developing solutions for debt distress. He also called for the formation of an African financial stability mechanism, modeled on the European Stability Mechanism
“The mechanism will provide a much-needed fiscal safety net for African economies and help to avoid regional spillover effects of countries falling into illiquidity and insolvency. Africa needs debt relief, debt restructuring and debt sustainability.”
Dr. Akinwumi Adesina, President of AfDB
He also pointed out that in the absence of reallocations, low-income countries would receive only about 3.2% of special drawing rights.
Dr. Okonjo Iweala adduced that there is a close synergy between trade and debt sustainability. She noted that, “by closing off export opportunities and lowering commodity prices, Covid-19 has worsened debt dynamics for many developing countries.”
She therefore urged governments to reinforce the rules of global trade and pave the way for low-income countries to earn foreign exchange earnings.
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