As part of its COVID-19 action plan, the G20 has agreed to suspend debt repayments for the poorest countries who request relief, for the rest of 2020. They estimate this could free up to US$12 billion in government debt payments. The G20 also calls on the World Bank and International Monetary Fund and private lenders to provide comparable debt relief.
This decision follows calls from the ONE Campaign and 200 other organisations to support the world’s most vulnerable nations during the COVID-19 pandemic and help them prioritise their healthcare systems and response plans.
— ONE (@ONECampaign) April 11, 2020
The countries with the fewest resources need a massive injection of cash to help them respond. Debt relief is not about charity — it’s about solidarity and smart solutions.
Why is debt relief so important?
As nations grapple with COVID-19 and its economic impacts, leaders should not have to make the impossible choice between using funds to support their citizens or to repay their outstanding debt.
Globally, 64 countries — including 30 in sub-Saharan Africa — spend more on repaying debt than investing in public health. The Gambia spends nine times more on debt repayment than on its annual health budget.
Suspending debt — and therefore allowing funds to stay in countries to be spent on emergency response — is one of the fastest, easiest, and most sensible ways to support the world’s most vulnerable nations during this global pandemic.
What needs to happen next?
The G20’s decision to suspend debt payments is the type of swift leadership we need to tackle COVID-19 globally. It’s a huge first step, but much more is needed.
Total debt payments in 2020 for the 77 poorest countries are worth at least US$48 billion. The G20 agreement today to suspend payments to governments (or bilateral debt) for the rest of the year is estimated to be worth about US$12 billion. Approximately a quarter of debt payments are owed to private creditors (banks and bond-holders), and another 25% to multilateral institutions, such as the IMF and WB.
In order to ensure debt relief is really freeing up funding to be spent on COVID-19 response efforts — and not just to pay other creditors — there needs to be similar debt relief from multilateral lenders and private banks.
This plan also covers the poorest countries, but leaves out countries that are still vulnerable and may need support, such as South Africa, Egypt, Morocco, and others. African Finance Ministers have asked for debt relief to be applied to all African countries, because if one African country is vulnerable, it affects all countries.
We also need a longer term plan to restructure the debt beyond the pandemic. Freeing up debt payments this year will help in the short term, but the economic and social impacts from the virus will continue for long after. Many of the world’s most vulnerable countries will continue to struggle to meet spiralling debt costs. At the very least this debt suspension should be extended to cover 2021 as well. Then, we need a comprehensive debt restructuring process, which may involve debt cancellation for some of the poorest countries.