In a virtual meeting of several heads of State, government, the United Nations (UN) and heads of multilateral development finance institutions on March 30, calls were made for an expansion of the Debt Service Suspension Initiative, under which low-income countries have suspended paying down debt during the Covid-19 pandemic.
The Financing for Development in the Era of Covid-19 and Beyond meeting was convened by Canadian Prime Minister Justin Trudeau, Jamaican Prime Minister Andrew Holness and UN Secretary-General António Guterres.
The initiative should be widened beyond low-income countries and its current expiration extended to offer much-needed fiscal space, panellists urged in a discussion of international debt architecture and liquidity.
The meeting also called for special drawing rights to be reallocated to poorer countries.
African Development Bank Group (AfDB) president Akinwumi Adesina took part in a roundtable event with International Monetary Fund (IMF) MD Kristalina Georgieva; World Bank president David Malpass; Organisation for Economic Cooperation and Development secretary-general Ángel Gurría; World Trade Organisation (WTO) director-general Ngozi Okonjo-Iweala; and Inter-American Development Bank president Mauricio Claver-Carone.
Debt distress is placing the achievement of the UN Sustainable Development Goals at risk, Guterres noted. He commended ongoing efforts to widen debt relief and improve access to special drawing rights but urged more.
“I am calling for bolder and more ambitious measures. A new debt mechanism could provide a menu of options, including debt swaps, buybacks and cancellations,” he said, adding that this is also the moment to tackle longstanding weaknesses in debt architecture.
Holness issued a blunt warning, saying debt servicing has come at “tremendous socioeconomic costs” to the world’s populations, which have borne the burden of steep costs in public expenditures.
He also praised the Group of 20’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.”
Economic recovery would require a comprehensive approach to increasing fiscal space for poor nations, Georgieva noted. This must include measures to include revenue collection, spending efficiency, the business environment, as well as very substantial international support, grants and concessional lending.
She said the IMF had discussed a proposal to allocate an additional $650-billion in special drawing rights, enabling member countries with strong economic fundamentals to divert reserves to low-income and vulnerable countries.
Meanwhile, Adesina said Africa’s economic recovery would hinge on securing equitable access to vaccines and developing solutions for debt distress. “Africa needs debt relief, debt restructuring and debt sustainability.”
He also pointed out that, in the absence of reallocations, low-income countries would receive only about 3.2% of special drawing rights.
Adesina also called for the formation of an African financial stability mechanism, modelled on the European Stability Mechanism, to provide jointly guaranteed emergency support. “The mechanism will provide a much-needed fiscal safety net for African economies and help to avoid regional spill over effects of countries falling into illiquidity and insolvency.”
Okonjo-Iweala said trade and debt sustainability were closely linked, and that by closing off export opportunities and lowering commodity prices, Covid-19 has worsened debt dynamics for many developing countries.
She called on governments to “deliver results” at the WTO this year, to reinforce the rules of global trade and pave the way for low-income countries to earn foreign exchange.