Rafand - Red Apple Foresight
How does the G20 address the challenges of the Poorest Countries?

How does the G20 address the challenges of the Poorest Countries?

Although the G20 Debt Service Trial Initiative had partial success, it was affected by competing interests and lack of coordination. More push is needed to solve the coordination problem.

In April 2020, on the call of the International Monetary Fund and the World Bank, the G20 launched the Debt Service Waiting Initiative (DSSI) to mitigate the negative financial impact of COVID-19 in the world’s poorest countries at a time of the pandemic. medical and economic consequences were rather uncertain.

In accordance with the DSSI, debt service payments were suspended until the end of 2020 and then extended until June 30, 2021 (and new ground rules for debt restructuring for eligible countries were formulated in the so-called “General Framework”). Here we will focus on the initial terrain window, which we will call DSSI-1. It is now clear that misinterpretation of the incentives faced by sovereign debtors and differences between the main actors (sovereign, multilateral and private sector) resulted in the DSSI bringing less aid to fewer countries than expected, undermining the G20’s reputation as an effective forum. to combat the financial consequences of global crises.

Our goal is to understand the factors behind this under-performance, to establish G20 accountability and to draw lessons for the future, given the G7’s interest in breathing new life into the initiative. Previously, we focused on the impact of DSSI on eligible low-income countries (ELICs) in sub-Saharan Africa (38 of the eligible 73). Here, we cover all ELICs, providing summary information on participation and relief delivered compared to initial estimates, and examining three contentious and largely unresolved issues that made burden sharing so problematic.

DSSI-1: recording

Outcomes

When the G20 launched DSSI, it met the debt service of ELIC to independent creditors (non-commercial) of the G20 or Paris Club members (including ten countries other than the G20) on public or public guaranteed obligations (PPG). USD 12.1 billion due between May 1 and December 31, 2020. To participate, ELICs had to file a claim to all their official bilateral creditors, apply for IMF financing, and agree to a cap for new non-concessional debts. general rules about debt sustainability. Payments would be delayed, not forgiven, and postponed such that net present values remain unchanged.

In a short time, the initiative was innovative, involving G20 official creditors (including China, India and Brazil) who were not members of the Paris Club and covered a large number of borrowing countries. Although this type of reporting was a formal requirement imposed by the World Bank on all borrowers to ensure the Bank’s status as a senior creditor, it also had the advantage of requiring greater transparency regarding creditors’ loans and borrowers borrowing from these new creditors.

Figure 1: DSSI secured debt service accounted for 37% of total due debt service from 73 ELICs in May-December 2020

Source: World Bank, Debtor Reporting System

Note: the orange highlighted section is debt relief covered by the DSSI agreement. The amounts are in USD billion. The breakdown of creditor type reflects World Bank rules and creditors own appraisal of status.