G7 ministers ‘committed’ to debt relief, urge expansion

G7 finance ministers on Friday, September 25, said they “remain committed” to a debt suspension program announced in April meant to help the poorest nations weather the coronavirus pandemic.

They also again called for private creditors to implement the Debt Service Suspension Initiative (DSSI) agreed to by the G20 and Paris Club that would suspend debt repayments through the end of the year.

“We reiterate our call for private creditors to implement the DSSI on a voluntary basis when requested by eligible borrowers,” a communique issued via the United States Treasury by the group of 7 most industrialized nations said.

“Voluntary private sector participation has been absent, which has limited the potential benefits for several countries,” it said. 

The DSSI has so far freed up $5 billion for 43 countries to offset the health and economic effects caused by COVID-19 – but that’s much less than Mohammed al-Jadaan, finance minister of current G20 president Saudi Arabia, predicted when the program was announced.

“I welcome the #G7’s call for #DSSI extension, more debt transparency, & action on debt relief beyond just suspension. Speed is needed to help the world’s poorest fight the impact of #COVID19,” World Bank President David Malpass said after the statement’s release.

‘Very challenging situation’

As the coronavirus pandemic wreaked havoc on the global economy, finance ministers and central bankers from the G20 had in April endorsed an immediate one-year debt suspension for the poorest countries, which are particularly vulnerable to the economic impacts of the COVID-19 pandemic.

At the time, they indicated about 70 countries would be eligible for assistance.

The International Monetary Fund (IMF) in June predicted the virus would wipe out $12 trillion over two years and world gross domestic product would drop 4.9% this year, but on Thursday, September 24, fund spokesman Gerry Rice hinted the outlook may be better than expected.

The situation is still “very challenging” for countries other than China, Rice said, with emerging markets facing “precarious” prospects caused by falling commodity prices, reduced export demand, fewer tourists, and declining remittances from abroad.

State-controlled or private?

The G7 bloc composed of the United Kingdom, Canada, France, Germany, Italy, Japan, and the United States acknowledged that sentiment in its Friday statement.

“Recognizing the ongoing financial needs of low-income countries, we support extending the DSSI in the context of a request for IMF financing,” the ministers said.

They added that the extension “should reflect the G20’s commitment to transparency and creditor coordination…as well as [reflect] the need for fair burden sharing among all creditors.”

The ministers also said they “strongly regret” moves by some countries to classify state-owned financial institutions as commercial lenders to avoid participating in the initiative.

G20 finance ministers are meeting next month, and the G7 statement also calls on them to agree on terms for further debt relief for poor nations. – Rappler.com